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30838403 comparative-analysis-of-mutual-funds 30838403 comparative-analysis-of-mutual-funds Document Transcript

  • A REPORT ON“COMPARITIVE ANALYSIS OF MUTUAL FUNDS”WITH SPECIAL REFERENCE TO SBI MUTUAL FUND MRINAL MANISH ENR. NO.:4108078078 2008 – 2010 COMPANY GUIDE: MR. KAPIL MALIK (H.O.D.- RETAIL) A report submitted in partial fulfilment for the requirement of MBF program
  • ACKNOWL EDGEMENTIn pursuit of an MBA degree, summer internship is a critical component of the entireprocess. ‘SBI FUNDS MANAGEMENT PVT. LTD.’ has given me the opportunity togain invaluable experience under the guidance of Mr. Gaurav Vatsayan (V.P.-Sales,Delhi Region) & Mr. Kapil Mallik (Head- Retail channel). Their continuous supportand valuable in hand experience provided me with the conceptual understanding andpractical approach needed to work efficiently for this project. The entire SBI MutualFund’s staff is praiseworthy.I would like to pay my regards and sincere thanks to my in charge Mr. Sumit MahajanforStimulating suggestions and encouragement helped me in all the time of my internship.Last but not the least; I also would like to thank the entire staff of SBI Mutual Fund andall my friends and colleagues who helped whenever I faced any difficult situation.I hope this report, reflecting my learning in the past fourteen weeks, is as beneficial tothe organization as it had been to me.Again, I sincerely thank all of them.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 2
  • - MRINAL MANISH ENR. NO.- 4108078078 CERTIFICATEThis is to certify that the project on “Comparative Analysis of Mutual Fundswith special refernce to SBI Mutual Fund ” has been done by Mr. MrinalManish with Reference to SBI Mutual Fund, Ashoka Estate, New Delhi as apart of the requirement of the Management of Business Finance (MBF)summer training program. This study is being submitted for approval to IndianInstitute of Finance. I declare that the form and contents of the above mentioned project areoriginal and have not been submitted in part or full, for any other degree ordiploma of this or any other Organization / Institute/ University. Signature: -------------------- Name: Mrinal Manish Enrollment No. 4108078078 MBF (2008-2010) Indian Institute of FinanceMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 3
  • PREFACEFinance & its functions are the part of economic activity. Finance is very essentiallyneeded for all types of organizations viz; small, medium, large-scale industries &service sector. Hence the role of finance manager & the subject finance accountinggained maximum importance. Liberalization, globalization & privatization created newchallengers to entrepreneur & corporate in carrying they’re day to day activities. So,“finance is regarded as the life blood of a business organization.”Master of business administrator is professional course which develop a new body ofknowledge & skill set & make as available for those seeking challenging carriers in theof liberalization & globalization.The goal of the Summer Training is to give a corporate exposure to the students as wellas to give them an opportunity to apply theory into the practice. The real businessproblems are drastically different from class-room case solving. Summer Project aims toproviding little insight into working of an organization to a management trainee.Among every stage of knowledge being inculcated in students, practical training in thecorporate world plays a significant role in exhibiting and pruning their capabilities.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 4
  • The purpose behind writing a report is to put in to works the practicaltraining that is imparted into me that gives a better and a clear understanding of theexperience I got.“COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH SPECIALREFERENCE TO SBI MUTUAL FUND”being a very important aspect of SBI Mutual Fund Pvt. Ltd., I have tried to exploremany areas of the subject in my project report.While preparing this project report I got the knowledge about various aspects regardingfinancial decisions made in organisation like “SBI Mutual Fund Pvt. Ltd.” the businessworld.My project is divided into 5 chapters & they are given as under. 1. Chapter 1 is an introduction of the mutual fund industry and the company. 2. Chapter 2 deals with review of literature. 3. Chapter 3 states the methodology being used in the project. 4. Chapter 4 basically states the Analysis of the Mutual Funds 5. Chapter 5 deals with the use of findings, conclusion. suggestions and limitations.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 5
  • CONTENTS Chapter Page no. I. INTRODUCTION………………………………………………………… 15-62 1. WHY COMPARATIVE ANALYSIS OF MUTUAL FUNDS?............15 2. INTRODUCTION TO MUTUAL FUNDS…………………………….17 3. INDUSTRY PROFILE…………………………………………………40 4. COMPANY PROFILE………………………………………………....46 5. NEW FUND OFFER (SBI GETS)...................................................61 6. OTHER WORK EXPERIENCE AND LEARNINGS DURING THE PROJECT ....................................................................................................62 II. REVIEW OF LITERATURE…………..………………………………..64- 74 III. RESEARCH METHODOLOGY.......................................................75-119 1. NEED OF THE STUDY…………………………........................78 2. TERMINOLOGY……………………………………………….....79MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 6
  • 3. DATA COLLECTION METHOD……. …………........................85 4. ANALYSIS OF THE INDIVIDUAL INVESTOR…….………….86 5. MOST POPULAR FUNDS OF SBI MUTUAL FUND................100 6. INVESTMENT BEHAVIOUR……….……………………..........102  FACTOR ANALYSIS...................................................107  DISCRIMINANT ANALYSIS.......................................109 7. MOST POPULAR FUND HOUSE IN TERMS OF HIGHEST INVESTMENT........................................................................119 IV. COMAPARRATIVE ANALYSIS……..………………………….........121- 176 1. INTRODUCTION....................................................................122 • NAV..............................................................122 • BETA.......................................................124 • STANDARD DEVIATION.........................124 • SHARPE RATIO.......................................125 • TREYNOR RATIO....................................125 2. INTER FIRM COMPARISION....................................127 • EQUITY DIVERSIFIED FUNDS................129MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 7
  • • EQUITY LINKED SAVING SCHEMES.....138 • EQUITY LARGE CAP FUNDS..................147 • EQUITY SMALL AND MID CAP FUNDS.155 • EQUITY THEMATIC FUNDS...................165 V. EXPECTATION OF THE INDUSTRY FROM BUDGET 2009-10....176 SWOT ANALYSIS............................................................................181 CONCLUSIONS………………………………………………………......184 SUGGESTIONS AND RECOMMENDATIONS.……………........186 LIMITATIONS………………………………………………….………...192 GLOSSARY……………………………………………..........................103 REFERENCES..................................................................................205 ANNEXURE......................................................................................207 TABLE INDEXTable Name Page no.1. BOARD OF DIRECTORS OF SBI MUTUAL FUND......................................532. NATIONAL DISTRIBUTORS..........................................................................593. ANALYSIS OF FUNDS ON THE BASIS OF VARIOUS RATIOS................814. ANALYSIS ACCORDING TO SAVINGS FROM INCOME..........................885. DESCRIPTIVE WEIGHTED FACTOR COUNTING METHOD...................105MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 8
  • 6. FACTOR ANALYSIS.......................................................................................1067. FUNDS RETURN OF EQUITY DIVERSIFIED FUNDS...............................1298. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS....................................1309. PORTFOLIO ANALYSIS OF EQUITY DIVERSIFIED FUNDS....................13310. NAV DETAILS OF EQUITY DIVERSIFIED FUNDS...................................13511. FUNDS RETURN OF ELSS.............................................................................13812. RISK PROFILE OF ELSS.................................................................................14013. PORTFOLIO ANALYSIS OF ELSS.................................................................14214. NAV DETAILS OF ELSS..................................................................................14415. FUNDS RETURN OF EQUITY LARGE CAP.................................................14716. RISK PROFILE OF EQUITY LARGE CAP.....................................................14917. PORTFOLIO ANALYSIS OF EQUITY LARGE CAP.....................................15118. NAV DETAILS OF EQUITY LARGE CAP.....................................................15319. FUNDS RETURN OF SMALL AND MID CAP.............................15620. RISK PROFILE OF SMALL AND MID CAP.................................15821. PORTFOLIO ANALYSIS OF SMALL AND MID CAP.................16022. NAV DETAILS OF SMALL AND MID CAP..................................16223. FUNDS RETURN OF EQUITY THEMATIC..................................16524. RISK PROFILE OF EQUITY THEMATIC .....................................16725. PORTFOLIO ANALYSIS OF EQUITY THEMATIC......................16926. NAV DETAILS OF EQUITY THEMATIC.......................................171MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 9
  • 27. COMPARISION OF MUTUAL FUNDS AGAINST OTHER INVESTMENTAVENUES................................................................................................173 CHART INDEX Chart name Page no. 1. PRODUCT PORTFOLIO.............................................................57 2. ANALYSIS OF THE PREFERENCES OF THE RESPONDENT.......86 3. ANALYSIS ACCORDING TO AGE...............................................87 4. ANALYSIS ACCORDING TO OCCUPATION................................89 5. ANALYSIS ON THE BASIS OF PURCHASE OF INVESTMENT....93 6. INVESTMENT OBJECTIVES........................................................94 7. RISK PREFERENCES...................................................................94MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 10
  • 8. PREFERABLE ROUTE TO INVESTING IN MUTUAL FUND........96 9. SATISFACTION LEVEL WITH SBI..............................................100 10. DEMOGRAPHIC FACTORS..........................................................109 11. MOST POPULAR FUND HOUSE..................................................119 12. FUND RETURNS OF EQUITY DIVERSIFIED FUNDS .................129 13. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS......................131 14. PORTFOLI ANALYSIS OF EQUITY DIVERSIFIED FUNDS..........133 15. NAV DETAILS OF EQUITY DIVERSIFIED FUNDS......................135 16. FUND RETURNS OF ELSS...........................................................139 17. RISK PROFILE OF ELSS..............................................................140 18. PORTFOLIO ANALYSIS OF ELSS...............................................143 19. NAV DETAILS OF ELSS..............................................................145 20. FUND RETURNS OF EQUITY LARGE CAP.........................147 21. RISK PROFILE OF EQUITY LARGE CAP...........................149 22. PORTFOLIO ANALYSIS OF LARGE CAP..........................151 23. NAV DETAILS OF LARGE CAP.........................................154 24. FUND RETURNS OF EQUITY SMALL AND MID CAP.......156 25. RISK PROFILE OF EQUITY SMALL AND MID CAP...........158 26. PORTFOLIO ANALYSIS OF EQUITY SMALL AND MID CAP .................................................................................................160MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 11
  • 27. NAV DETAILS OF EQUITY SMALL AND MID CAP...........162 28. FUND RETURNS OF EQUITY THEMATIC..........................165 29. RISK PROFILE OF EQUITY THEMATIC.............................167 30. PORTFOLIO ANALYSIS OF EQUITY THEMATIC...............169 31. NAV DETAILS OF EQUITY THEMATIC..............................171EXECUTIVE SUMMARYOBJECTIVE:  To know the awareness of mutual funds among people.  To see the interest of people in investing in mutual funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 12
  •  To know the investment behaviour of investors in mutual fund according to different age group.  To ascertain the percentage of income the investors invest in mutual fund.  To know the different attitudes of people regarding risk, rate of return, period of investment.  To know the investors preferred financial product for investment.SCOPE:There are four divisions in SBI MF for the purpose of marketing and sales. They givespecial attention for the retention of customers i.e. investors, distributors and brokers.Four divisions are:1. National distributors.2. Banking.3. Individual financial advisors.4. FII’s.FII’s are taking care by head office in MUMBAI. I am under section of Nationaldistributors and Individual financial advisors. To maintain relationships with them andmake them aware about the new offerings and sort out their existing problems. My areaof scope is DELHI region. There are around 250 ND’s and IFA’s in this region.METHODOLOGY FOLLOWED:Methodology basically means the selection of the various methods and techniques in theresearch-conducted. The various steps includes: -1. Selection of a representative sample from the general population, which depicts thecharacteristics of the completepopulation.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 13
  • 2. Application of various tools and techniques to obtain relevantinformation related to a case.3. Collection of relevant data.4. Analysis and interpretation of the data.5. Generation of a final report.RESEARCH DESIGNThere are 34 fund houses currently operating in India of which four have been inexistence for less than three years. Whereas till 2004, hardly a few equity schemes werelaunched each year, that number has grown by 8-10 times now.For the purpose of the research, I have selected 5 fund houses as mentioned under: SBI Mutual Fund Birla Reliance Prudential ICICI Franklin TempletonThe following methodology is adopted for ComparisonStep1: Selection of few well-performing Funds of Big Fund Houses of India.Step2: Collection of data (against various parameters) for comparison of Funds.Step3: Analyses of the parameters and their relevance in comparing the funds.Step4: Comparing and Ranking these funds on the basis of inputs from executives andtherating agencies.Step5: Generation of a project report.DATA COLLECTIONMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 14
  • The primary data collection was the most important part of the project.This includes collecting the information through field research. For collectinginformation, a personal interview was conducted with the help of questionnaire and therequired information was collected for the respondents.DATA ANALYSISAfter collecting the data, data is to be analyzed. The findings and the analysis have beenmentioned further in the report. 1. INTRODUCTIONWHY COMAPARATIVE ANALYSIS OF MUTUAL FUNDS?MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 15
  • All over the world, mutual fund is one of the most popular instruments forinvestment. Its popularity with consumer has dramatically increased over the last coupleof years worldwide; the mutual fund has a long and successful history. The popularity ofmutual fund has increased manifold. In developed financial market like United States,mutual has almost overtaken bank deposits and total assets of insurance funds.The mutual fund industry in India is regulated by Association of Mutual Funds in India(AMFI). The mutual fund industry in India is of 493,287 crores approx. SBI MutualFund is India’s largest bank sponsored mutual fund and has an enviable track record injudicious investments and consistent wealth creation.The fund traces its lineage to SBI - India’s largest banking enterprise. The institution hasgrown immensely since its inception and today it is Indias largest bank, patronized byover 80% of the top corporate houses of the country.SBI Mutual Fund is a joint venture between the State Bank of India and SociétéGénérale Asset Management, one of the world’s leading fund managementcompanies that manages over US$ 500 Billion worldwide.In twenty years of operation, the fund has launched 38 schemes and successfullyredeemed fifteen of them. In the process it has rewarded its investors handsomely withconsistently high returns.A total of over 4.6 million investors have reposed their faith in the wealth generationexpertise of the Mutual Fund.Schemes of the Mutual fund have consistently outperformed benchmark indices andhave emerged as the preferred investment for millions of investors and HNI’s.Today, the fund manages over Rs. 28500 crores of assets and has a diverse profile ofinvestors actively parking their investments across 36 active schemes.The fund serves this vast family of investors by reaching out to them through network ofover 130 points of acceptance, 28 investor service centers, 46 investor service desks and56 district organizers.SBI Mutual is the first bank-sponsored fund to launch an offshore fund – ResurgentIndia Opportunities Fund.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 16
  • Growth through innovation and stable investment policies is the SBI MFcredoState Bank of India was born on 1st July,1955 based on the recommendations of AllIndia Rural Credit Survey Committee(1954) headed by Shri A.D Gorwala, through anAct of Parliament. The main objective of SBI is “Extension of Banking facilities on alarge scale, more particularly in rural and semi-urban areas, and for diverse other publicpurposes and to transfer to it the undertaking of the Imperial Bank of India and providefor other matters connected thereto or incidental thereto.”SBI is the oldest, the largestand the highest profit making bank in India. Its evolution is not only intimatelyinterwoven with the economic development of modern India but also with our nationbuilding process to an extent perhaps unparalleled in the world. Moving like colossuseson the Indian financial turf, it has become a symbol of national pride and economicdevelopment.SBI with its extensive network of over 9000 branches has vast clientele and extendsservice not only on commercial basis but also on the basis of social considerations. TheBank is also on its way to introduce and absorb technology extensively at a rapid speednot only to remain customer-friendly and efficient for existing business but also tomanage new business and services in an increasingly dynamic and global environment.The project entitled “Comparison of Mutual Fund with special reference to SBIMutual Fund” gives me an opportunity to enhance my knowledge of mutual fundsindustry and gives me an insight of business processes of different types of client.INTRODUCTION TO MUTUAL FUNDSMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 17
  • Mutual fund is a buzz in the market these days. The mutual fund industryis burgeoning, it is completely untapped market. Only 5% of total potential of thisindustry has been grabbed. Hence this industry has a lot of opportunities in it. That’swhy it is so much interactive.As Indian economy is growing at the rate of 8% per annum, we can see its effect in allareas. The Indian stock market and companies have become lucrative for foreigninvestors. More and more fund is pouring in our country. This is increasing liquidity inthe market and hence increasing the money in the hands of people and thus investment.As the future prospects for Indian companies are bright, they have lots of opportunitiesto expand their business worldwide, the investment in Indian companies.A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is invested by the fund manager indifferent types of securities depending upon the objective of the scheme. These couldrange from shares to debentures to money market instruments. The income earnedthrough these investments and the capital appreciations realized by the scheme areshared by its unit holders in proportion to the number of units owned by them (pro rata).Thus a Mutual Fund is the most suitable investment for the common man as it offers anopportunity to invest in a diversified, professionally managed portfolio at a relativelylow cost. Anybody with an investible surplus of as little as a few thousand rupees caninvest in Mutual Funds. Each Mutual Fund scheme has a defined investment objectiveand strategy.A mutual fund is the ideal investment vehicle for today’s complex and modern financialscenario. Markets for equity shares, bonds and other fixed income instruments, realestate, derivatives and other assets have become mature and information driven. Pricechanges in these assets are driven by global events occurring in faraway places. Atypical individual is unlikely to have the knowledge, skills, inclination and time to keeptrack of events, understand their implications and act speedily. An individual also findsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 18
  • it difficult to keep track of ownership of his assets, investments, brokeragedues and bank transactions etc.A mutual fund is the answer to all these situations. It appoints professionally qualifiedand experienced staff that manages each of these functions on a full time basis. Thelarge pool of money collected in the fund allows it to hire such staff at a very low cost toeach investor. In effect, the mutual fund vehicle exploits economies of scale in all threeareas - research, investments and transaction processing. While the concept ofindividuals coming together to invest money collectively is not new, the mutual fund inits present form is a 20th century phenomenon. In fact, mutual funds gained popularityonly after the Second World War. Globally, there are thousands of firms offering tens ofthousands of mutual funds with different investment objectives. Today, mutual fundscollectively manage almost as much as or more money as compared to banks.A draft offer document is to be prepared at the time of launching the fund. Typically, itpre specifies the investment objectives of the fund, the risk associated, the costsinvolved in the process and the broad rules for entry into and exit from the fund andother areas of operation. In India, as in most countries, these sponsors need approvalfrom a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks attrack records of the sponsor and its financial strength in granting approval to the fundfor commencing operations.A sponsor then hires an asset management company to invest the funds according to theinvestment objective. It also hires another entity to be the custodian of the assets of thefund and perhaps a third one to handle registry work for the unit holders (subscribers) ofthe fund.In the Indian context, the sponsors promote the Asset Management Company also, inwhich it holds a majority stake. In many cases a sponsor can hold a 100% stake in theAsset Management Company (AMC). E.g. Birla Global Finance is the sponsor of theBirla Sun Life Asset Management Company Ltd., which has floated different mutualMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 19
  • funds schemes and also acts as an asset manager for the funds collectedunder the schemes.Future ScenarioThe asset base will continue to grow at an annual rate of about 30 to 35 % over the nextfew years as investor’s shift their assets from banks and other traditional avenues. Someof the older public and private sector players will either close shop or be taken over.Out of ten public sector players five will sell out, close down or merge with strongerplayers in three to four years. In the private sector this trend has already started with twomergers and one takeover. Here too some of them will down their shutters in the nearfuture to come.But this does not mean there is no room for other players. The market will witness aflurry of new players entering the arena. There will be a large number of offers fromvarious asset management companies in the time to come. Some big names like Fidelity,Principal, and Old Mutual etc. are looking at Indian market seriously. One importantreason for it is that most major players already have presence here and hence these bignames would hardly like to get left behind.The mutual fund industry is awaiting the introduction of derivatives in India as thiswould enable it to hedge its risk and this in turn would be reflected in it’s Net AssetValue (NAV).SEBI is working out the norms for enabling the existing mutual fund schemes to trade inderivatives. Importantly, many market players have called on the Regulator to initiateMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 20
  • the process immediately, so that the mutual funds can implement thechanges that are required to trade in Derivatives.Market TrendsA lone UTI with just one scheme in 1964 now competes with as many as 400 oddproducts and 34 players in the market. In spite of the stiff competition and losing marketshare, UTI still remains a formidable force to reckon with.Last six years have been the most turbulent as well as exiting ones for the industry. Newplayers have come in, while others have decided to close shop by either selling off ormerging with others. Product innovation is now passé with the game shifting toperformance delivery in fund management as well as service. Those directly associatedwith the fund management industry like distributors, registrars and transfer agents, andeven the regulators have become more mature and responsible.The industry is also having a profound impact on financial markets. While UTI hasalways been a dominant player on the bourses as well as the debt markets, the newgenerations of private funds which have gained substantial mass are now seen flexingtheir muscles. Fund managers, by their selection criteria for stocks have forced corporategovernance on the industry. By rewarding honest and transparent management withhigher valuations, a system of risk-reward has been created where the corporate sector ismore transparent then before.Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCGand technology sector. Funds performances are improving. Funds collection, whichaveraged at less than Rs100bn per annum over five-year period spanning 1993-98doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceededRs300bn. Total collection for the current financial year ending March 2000 is expectedto reach Rs450bn.What is particularly noteworthy is that bulk of the mobilization has been by the privatesector mutual funds rather than public sector mutual fundsMutual funds are now alsoMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 21
  • competing with commercial banks in the race for retail investor’s savingsand corporate float money. The power shift towards mutual funds has become obvious.The coming few years will show that the traditional saving avenues are losing out in thecurrent scenario. Many investors are realizing that investments in savings accounts areas good as locking up their deposits in a closet. The fund mobilization trend by mutualfunds in the current year indicates that money is going to mutual funds in a big way.India is at the first stage of a revolution that has already peaked in the U.S. The U.S.boasts of an Asset base that is much higher than its bank deposits. In India, mutual fundassets are not even 10% of the bank deposits, but this trend is beginning to change.Recent figures indicate that in the first quarter of the current fiscal year mutual fundassets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank,the Financial Express September, 99) This is forcing a large number of banks to adoptthe concept of narrow banking wherein the deposits are kept in Gilts and some otherassets which improves liquidity and reduces risk. The basic fact lies that banks cannotbe ignored and they will not close down completely. Their role as intermediaries cannotbe ignored. It is just that Mutual Funds are going to change the way banks do business inthe future.WHAT IS A MUTUAL FUND?A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. It offers an opportunity to invest in a diversified, professionallymanaged basket of securities at a relatively low cost. The flow chart below describesbroadly the working of a mutual fund: Pool their money with Investors Fund managersMRINAL MANISH (4108078078) Invest inINDIAN INSTITUTE OF FINANCE Page 22 Passed back to Returns Securities
  • “Mutual Funds are popular among all income levels. With a mutual fund, we get adiversified basket of stocks managed by professionals”These Trusts are run by experienced Investment Managers who use their knowledge andexpertise to select individual securities, which are classified to form portfolios that meetpredetermined objectives and criteria.These portfolios are then sold to the public. They offer the investors the following mainservices: Portfolio Diversification Marketability: A new financial asset is created that may be more easilymarketable than the underlying securities in the portfolio.Organization of a Mutual FundA mutual fund is set up in the form of a trust, which has sponsor, trustees,asset management company (AMC) and custodian. The trust is established by a sponsoror more than one sponsor who is like promoter of a company. The trustees of the mutualfund hold its property for the benefit of the unit holders. Asset Management Company(AMC) approved by SEBI manages the funds by making investments in various types ofsecurities. Custodian, who is registered with SEBI, holds the securities of variousschemes of the fund in its custody. The trustees are vested with the general power ofMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 23
  • superintendence and direction over AMC. They monitor the performanceand compliance of SEBI Regulations by the mutual fund.TYPES OF MUTUAL FUND SCHEMESMutual fund schemes may be classified on the basis of its structure and its investmentobjective.By Structure:Open-ended Funds:An open-end fund is one that is available for subscription all through the year. These donot have a fixed maturity. Investors can conveniently buy and sell units at Net AssetValue ("NAV") related prices. The key feature of open-end schemes is liquidity.Closed ended Funds:A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15years. The fund is open for subscription only during a specified period. Investors caninvest in the scheme at the time of the initial public issue and thereafter they can buy orMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 24
  • sell the units of the scheme on the stock exchanges where they are listed.In order to provide an exit route to the investors, some close-ended funds give an optionof selling back the units to the Mutual Fund through periodic repurchase at NAV relatedprices. SEBI Regulations stipulate that at least one of the two exit routes is provided tothe investor. .Interval Funds:Interval funds combine the features of open-ended and close-ended schemes. They areopen for sale or redemption during pre-determined intervals at NAV related pricesBy Investment ObjectiveGrowth Funds:The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a majority of their corpus in equities. It has beenproved that returns from stocks, have outperformed most other kind of investments heldover the long term. Growth schemes are ideal for investors having a long term outlookseeking growth over a period of time.Income Funds:The aim of income funds is to provide regular and steady income to investors. Suchschemes generally invest in fixed income securities such as bonds, corporate debenturesand Government securities. Income Funds are ideal for capital stability and regularincome.Balanced Fund:The aim of balanced funds is to provide both growth and regular income. Such schemesperiodically distribute a part of their earning and invest both in equities and fixedMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 25
  • income securities in the proportion indicated in their offer documents. In arising stock market, the NAV of these schemes may not normally keep pace, or fallequally when the market falls. These are ideal for investors looking for a combination ofincome and moderate growth.MoneyMarketFunds:The aim of money market funds is to provide easy liquidity, preservation of capital andmoderate income. These schemes generally invest in safer short-term instruments suchas treasury bills, certificates of deposit, commercial paper and inter-bank call money.Returns on these schemes may fluctuate depending upon the interest rates prevailing inthe market. These are ideal for Corporate and individual investors as a means to parktheir surplus funds for short periods.Other SchemesTax Saving Schemes:These schemes offer tax rebates to the investors under specific provisions of the IndianIncome Tax laws as the Government offers tax incentives for investment in specifiedavenues. Investments made in Equity Linked Savings Schemes (ELSS) and PensionSchemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act alsoprovides opportunities to investors to save capital gains u/s 54EA and 54EB byinvesting in Mutual Funds.Special Schemes • Industry Specific SchemesMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 26
  • Industry Specific Schemes invest only in the industries specified in theoffer document. The investment of these funds is limited to specific industries likeInfoTech, FMCG, and Pharmaceuticals etc. • Index SchemesIndex Funds attempt to replicate the performance of a particular index such as the BSESensex or the NSE 50 • Sectoral SchemesSectoral Funds are those which invest exclusively in a specified sector. This could be anindustry or a group of industries or various segments such as A Group shares or initialpublic offeringsBENEFITS OF MUTUAL FUNDS Diversification Professional management Tax benefitsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 27
  • Affordability TransparencyProfessional ManagementMutual Funds provide the services of experienced and skilled professionals, backed by adedicated investment research team that analyses the performance and prospects ofcompanies and selects suitable investments to achieve the objectives of the scheme.DiversificationMutual Funds invest in a number of companies across a broad cross – section ofindustries and sectors. This diversification reduces the risk because seldom do all stocksdecline at the same time and in the same proportion. You achieve this diversificationthrough a Mutual Fund with far less money than you can do on your own.AffordabilityA mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon theinvestment objective of the scheme. An investor can buy into a portfolio of equities,which would otherwise be extremely expensive.Tax BenefitsAny income distributed after March 31, 2002 will be subject to tax in the assessment ofall unit-holders. However, as a measure of concession to Unit holders of open – endedand equity – oriented funds, income distributions for the year ending March 31, 2003,will be taxed at a concessional rate of 10%.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 28
  • Return PotentialOver a medium to long – term, mutual funds have the potential to provide a higherreturn as they invest in a diversified basket of selected securities.Low CostsInvesting in the capital markets because the benefits of scale in brokerage, mutual fundsare a relatively less expensive way to invest compared to directly custodial and otherfees translate into lower costs for investors.LiquidityIn open – ended schemes, the investor gets the money back promptly at MAV relatedprices from the mutual fund. In closed – ended schemes, the units can be sold on a stockexchange at the prevailing market price or the investor can avail of the facility of directrepurchase at NAV related prices by the mutual fund.TransparencyYou get regular information on the value of your investment in addition to disclosure onthe specific investments made by your scheme, the proportion invested in each class ofassets and the fund manager’s investment strategy and outlook.FlexibilityThrough features such as regular investment plans, regular withdrawal plans anddividend reinvestment plans, you can systematically invest or withdraw funds accordingto your needs and convenience.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 29
  • Well RegulatedAll mutual funds are registered with SEBI and they function within the provisions ofstrict regulations designed to protect the interests of investors.Tax breaksLast but not the least, mutual funds offer significant tax advantages. Dividendsdistributed by them are tax-free in the hands of the investor.They also give you the advantages of capital gains taxation. If you hold units beyondone year, you get the benefits of indexation. Simply put, indexation benefits increaseyour purchase cost by a certain portion, depending upon the yearly cost-inflation index(which is calculated to account for rising inflation), thereby reducing the gap betweenyour actual purchase cost and selling price. This reduces your tax liability.What’s more, tax-saving schemes and pension schemes give you the added advantage ofbenefits under Section 88. You can avail of a 20 per cent tax exemption on aninvestment of up to Rs 10,000 in the scheme in a yearNo assured returns and no protection of capitalIf you are planning to go with a mutual fund, this must be your mantra: mutual funds donot offer assured returns and carry risk. For instance, unlike bank deposits, yourinvestment in a mutual fund can fall in value. In addition, mutual funds are not insuredor guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakhMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 30
  • per bank is insured by the Deposit and Credit Insurance Corporation, asubsidiary of the Reserve Bank of India).There are strict norms for any fund that assures returns and it is now compulsory forfunds to establish that they have resources to back such assurances. This is because mostclosed-end funds that assured returns in the early-nineties failed to stick to theirassurances made at the time of launch, resulting in losses to investors.Restrictive gainsDiversification helps, if risk minimization is your objective. However, the lack ofinvestment focus also means you gain less than if you had invested directly in a singlesecurity.In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in thestock would appreciate by 50 per cent. But your investment in the mutual fund, whichhad invested 10 per cent of its corpus in Reliance, will see only a 5 per centappreciation.RISK ASSOCIATED WITH MUTUAL FUNDS Credit Political inflation RISKS Liquidity MarketMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 31
  • Risk-Return Trade OffThe most important relationship to understand is the risk-return trade off. Higher the riskgreater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you,the investor to decide how much risk you are willing to take. In order to do this youmust first be aware of the different types of risks involved with your investmentdecision.Market RiskSometimes prices and yields of all securities rise and fall. Broad outside influencesaffecting the market lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP)that workson the concept of Rupee Cost Averaging (RCA) might help mitigate the risk.Credit RiskThe debt servicing ability of a company through its cash flows determines the CreditRisk faced by you. This credit risk is measured by independent rating agencies likeCRISIL who rate companies and their paper. A ‘AAA’ rating is considered the safestwhereas a ‘D’ rating is considered poor credit quality. A well – diversified portfoliomight help mitigate this risk.Inflation RiskMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 32
  • Inflation is the loss of purchasing power over a time. A lot of times people makeconservative investment decisions to protect their capital but end up with a sum ofmoney that can buy less than what the principal could, at the time of investment. Awell–diversified portfolio with some investment in equities might help mitigate this risk.Interest Rate RiskIn a free market economy interest rates are difficult and not impossible to predict.Changes in interest rates affect the prices of bonds as well as equities. If interest ratesrise, the prices of bonds will fall and vice versa. Equity might be negatively affected aswell in a rising interest rate environment. A well-diversified portfolio might helpmitigate this risk.Political RiskChanges in government policy and political decision can change the investmentenvironment. They can create a favourable environment for investment or vice versa.Liquidity RiskLiquidity risk arises when it becomes difficult to sell the securities that one haspurchased. It can be partly mitigated by diversification, staggering of maturities as wellas internal risk controls that lean towards purchase of liquid securities. It simply meansthat you must spread your investment across different securities (stocks, bonds, moneymarket instruments, real estate, fixed deposits etc.). This kind of a diversification mayadd to the stability of your returns, for example, during one period of time equitiesmight under perform but bonds and money market instruments might do well enough tooffset the effect of a slump in the equityMarkets.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 33
  • DISADVANTAGES OF MUTUAL FUNDSThere are certainly some benefits to mutual fund investing, but you should also be awareof the drawbacks associated with mutual funds. 1. No Insurance: Mutual funds, although regulated by the government, are not insured against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment. 2. Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the funds holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly. 3. Fees and Expenses: Most mutual funds charge management and operating fees that pay for the funds management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up significantly. Some of these expenses are charged on anMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 34
  • ongoing basis, unlike stock investments, for which a commission is paid only when you buy and sell . 4. Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor. 5. Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You also should remember that you are trusting someone else with your money when you invest in a mutual fund. 6. Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after theyve calculated the current value of their holdings. 7. Size: Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there are strict rules about how much of a single company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a result, the fund might be forced to lower its standards when selecting companies to invest in.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 35
  • 8. Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the funds money is invested in cash instead of assets, which tends to lower the investors potential return.Different Types: The advantages and disadvantages listed above apply to mutual fundsin general. However, there are over 10,000 mutual funds in operation, and these fundsvary greatly according to investment objective, size, strategy, and style. Mutual fundsare available for virtually every investment strategy (e.g. value, growth), every sector(e.g. biotech, internet), and every country or region of the world. So even the process ofselecting a fund can be tedious.Net Asset Value (NAV)Open-end mutual funds price their shares in terms of a NetAsset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but itwill not necessarily be the price at which you buy or sell closed-end shares). NAV iscalculated by adding up the market value of all the funds underlying securities,subtracting all of the funds liabilities, and then dividing by the number of outstandingshares in the fund. The resulting NAV per share is the price at which shares in the fundare bought and sold (plus or minus any sales fees). Mutual funds only calculate theirNAVs once per trading day, at the close of the trading session.HISTORY OF MUTUAL FUND IN INDIAHISTORY – The Landmarks1963: UTI is India’s first mutual fund.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 36
  • 1964: UTI launches US-64.1971: UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched.1986: UTI Master share, India’s first true ‘mutual fund’ scheme, launched.1987: PSU banks and insurers allowed floating mutual funds; State Bank of India (SBI)first off the blocks.1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in sharesand mutual funds.1993: Private sector and foreign players allowed; Kothari Pioneer first private fundhouse to start operations; SEBI set up to regulate industry.1994: Morgan Stanley is the first foreign player.1996: Sebi’s mutual fund rules and regulations, which forms the basis of most currentlaws, come into force.1998: UTI Master Index Fund is the country’s first index fund.1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisitionin the mutual fund industry.2000: The industry’s assets under management crosses Rs 1, 00,000 crore.2001: US-64 scam leads to UTI overhaul.2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned fromgiving commissions to investors; floating rate funds and Foreign debt funds debut.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 37
  • 2003: AMFI certification made compulsory for new agents; fund of funds launched.The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank. The history ofmutual funds in India can be broadly divided into four distinct phases.FIRST PHASE: 1964 – 87Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set upby the Reserve Bank of India and functioned under the regulatory and administrativecontrol of the Reserve Bank of India. In 1978, UTI was de-linked from the RBI and theIndustrial Development Bank of India (IDBI) took over the regulatory andadministrative control in place of RBI. The first scheme launched by UTI was UnitScheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under themanagement.SECOND PHASE: 1987 – 1993 (Entry of Public Sector Funds)1987 marked the entry of non – UTI, public sector mutual funds set up by public sectorbanks and Life Insurance Corporation of India (LIC) and General Insurance Corporationof India (GIC). SBI Mutual Fund was the first non – UTI Mutual Fund established inJune1987 followed by Can Bank Mutual Fund (Dec ‘87), Punjab National Bank MutualFund (Aug ‘89), Indian Bank Mutual Fund (Nov ‘89), Bank of India (Jun ‘90), Bank ofBaroda Mutual Fund (Oct ‘92). LIC established its mutual fund in June 1989 while GIChad set up its mutual fund in December 1990. At the end of 1993, the mutual fundindustry had assets under management of Rs.47, 004 crores.THIRD PHASE: 1993 – 2003 (Entry of Private Sector Funds)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 38
  • With the entry of private sector funds in 1993, a new era started in the Indian mutualfund industry, giving the Indian investors a wider choice of fund families. Also, 1993was the year in which the first Mutual Fund came into being, under which all mutualfunds, except UTI, were to be registered and governed. The erstwhile Kothari Pioneer(now merged with Franklin Templeton) was the first private sector mutual fundregistered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveand revised Mutual Fund Regulations in 1996.The industry now functions under the SEBI (Mutual Fund) Regulations 1996. Thenumber of mutual fund houses went on increasing, with many foreign mutual fundssetting up funds in India and also the industry has witnessed several mergers andacquisitions. As at the end of January 2003, there were 33 mutual funds with total assetsof Rs.1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets undermanagement was way ahead of other mutual funds.FOURTH PHASE: since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI wasbifurcated into two separate entities. One is the Specified Undertaking of the Unit Trustof India with assets under management of Rs.29,835 crores as at the end of January2003, representing broadly, the assets of US 64 scheme, assured return and certain otherschemes. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB andLIC. It is registered with SEBI and functions under the Mutual Fund Regulations. Withthe bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000crores of assets under management and with the setting up of a UTI Mutual Fund,conforming to the SEBI MutualFund Regulations, and with recent mergers taking place among different private sectorfunds, the mutual fund industry has entered its current phase of consolidation andgrowthMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 39
  • INDUSTRY PROFILE:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 40
  • Growth of asset under management from March-1965 to March-2009STRUCTURE OF MUTUAL FUNDS IN INDIAMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 41
  • Like other countries, India has a legal framework within which mutual funds must beconstituted. In India, open and close – end funds operate under the same regulatorystructure, i.e. in India, all mutual funds are constituted along one unique structure – asunit trust. A mutual fund in India is allowed to issue open – end and close – endschemes under a common legal structure. The structure, which is required to befollowed by mutual funds in India, laid down under SEBI (Mutual Fund) Regulations,1996.The Fund Sponsor‘Sponsor’ is defined under SEBI Regulations as any person who, acting alone or incombination with another body corporate establishes a mutual fund. The sponsor of afund is akin to the promoter of companies he gets the fund registered with SEBI. TheMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 42
  • sponsor will form a Trust and appoint a Board of Trustees. All theseappointments are made in accordance with the SEBI Regulations. As per the existingSEBI Regulations, for a person to qualify as a sponsor, must contribute at least 40% ofthe net worth of the AMC and issues a sound financial track over five years prior toregistration.Mutual Funds as TrustsMutual Fund in India is constituted in the form of a Public Trust under the Indian TrustAct 1882. The fund invites investors to contribute their money in the common pool bysubscribing to units issued by various schemes established by the Trust as evidence oftheir beneficial interest in the fund. The Trust or Fund has no legal capacity itself ratherit is the Trustee(s) who have legal capacity and therefore the trustees take all acts inrelation to the Trust itself.TrusteesA Board of Trustees – a body of individuals, or a trust company – a corporate body, maymanage the Trust. Board of Trustees manages most of the funds in India. The Trust iscreated through a document called the Trust Deed that is executed by the Fund Sponsorin favors of the trustees. They are the primary guardian of the unit holder’s funds andassets. They ensure that AMC’s operations are along professional lines.Right of Trustees a) Appoint the AMC with the prior approval of SEBI b) Approve each of the schemes floated by the AMC c) Have the right to request any necessary information from the AMC concerning the operations of various schemes managed by the AMCObligations of the AMC and its DirectorsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 43
  • They must ensure that: a) Investment of funds is in accordance with SEBI Regulations and the Trust Deed b) Take responsibility for the act of its employees and others whose services it has procured c) Do not undertake any other activity conflicting with managing the fundAsset Management CompanyThe role of an Asset Management Company (AMC) is to act as the investment managerof the trust under the Board supervision.Transfer AgentsTransfer Agents are responsible for issuing and redeeming units of the mutual fund andprovide other related services such as preparation of transfer documents updatinginvestor’s records. A fund may choose to opt this activity in-house or by an outsidetransfer agent.DistributorsAMCs usually appoint distributors or brokers, who sell units on behalf of the fund.Some funds require that all transactions to be routed through such brokers.BankersA fund’s activities involved dealing with the money on a continuous basis primarilywith respect to buying and selling units, paying for investment made, receiving theproceeds from sale of investment and discharging its obligations towards operativeexpenses. A fund’s banker therefore plays a crucial role with respect to its financialdealings.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 44
  • Custodian and DepositoryThe custodian is appointed by the Board of Trustees for safekeeping of securities interms of physical delivery and eventual safe keeping or participating in the clearingsystem through approved depository companies.ASSOCIATION OF MUTUAL FUNDS IN INDIAWith the increase in mutual fund players in India, a need for mutual fund association inIndia was generated to function as a non profit organisation. Association of MutualFunds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is a apex body of all Asset Management Companies (AMC) which has beenregistered with SEBI. Till date all the AMCs are that have launched mutual fundschemes are its members. It functions under the supervision and guidelines of its Boardof Directors.Association of Mutual Funds India has brought down the Indian Mutual Fund Industryto a professional and healthy market with ethical lines enhancing and maintainingstandards. It follows the principle of both protecting and promoting the interests ofmutual funds as well as their unit holder.The objectives of Association of Mutual Funds in IndiaThe Association of Mutual Funds of India works with 30 registered AMCs of thecountry. It has certain defined objectives which juxtaposes the guidelines of its Board ofDirectors. The objectives are as follows:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 45
  •  This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund in India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programmed for investor’s in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodiesMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 46
  • COMPANY PROFILEABOUT THE ORGANIZATION:SBI Mutual Fund is India’s largest bank sponsored mutual fund. The fund traces itslineage to SBI - India’s largest banking enterprise. The institution has grown immenselysince its inception and today it is Indias largest bank, patronized by over 80% of the topcorporate houses of the country. SBI Mutual Fund is a joint venture between theState Bank of India and Société Générale Asset Management, one of the world’sleading fund management companies that manages over US$ 500 Billion worldwide. Intwenty years of operation, the fund has launched 38 schemes and successfully redeemedfifteen of them.A total of over 4.6 million investors have reposed their faith in the wealth generationexpertise of the Mutual Fund. The fund serves this vast family of investors by reachingout to them through network of over 130 points of acceptance, 28 investor servicecenters, 46 investor service desks and 56 district organizers. Today, the fund managesover Rs. 28500crores of assets and has a diverse profile of investors actively parkingtheir investments across 36 active schemes. SBI Mutual is the first bank-sponsored fundto launch an offshore fund – Resurgent India Opportunities Fund. Growth throughinnovation and stable investment policies is the SBI MF credo.GUIDING PRINCIPLES OF SBI MUTUAL FUND:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 47
  • ConsistencyValue oriented investment philosophy is designed to produce consistent results aimingto beatthe benchmark at all times.FlexibilityOffers investors a broad range of managed investment products in various asset classesand risk parameters, within the at most operational flexibility to suit their investmentneeds.StabilityOur commitment to the highest quality of service and integrity are the foundation uponwhich clients can build their trust with usOriginThe origin of the Indian mutual funds industry dates back to 1963 when the Unit Trustof India (UTI) came into existence at the initiative of the Government of India and theReserve Bank of India. Since then the mutual funds sector remained the sole fiefdom ofUTI till 1987 when a slew of non-UTI, public sector mutual funds were set up bynationalized banks and life insurance companies.The year 1993 saw sweeping changes being introduced in the mutual fund industry withprivate sector fund houses making their debut and the laying down of comprehensivemutual fund regulations. Over the years, the Indian mutual funds industry has witnessedMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 48
  • an exponential growth riding piggyback on a booming economy and thearrival of a horde of international fund houses.Concept“Mutual fund is vehicle that enables a number of investors to pool their money and have it jointly managed by a professional money manager.”A Mutual Fund is a pool of money, collected from investors, and is invested accordingto certain investment objectives.A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal.The money thus collected is then invested in capital market instruments such as shares,debentures and other securities.The income earned through these investments and the capital appreciation realised areshared by its unit holders in proportion to the number of units owned by them.Mutual Fund companies are known as asset management companies. They offer avariety of diversified schemes. Mutual Fund acts as investment companies. They poolthe savings of investors and invest them in a well-diversified portfolio of soundinvestments.Mutual funds can be broken down into two basic categories: equity and bond funds.Equity funds invest primarily in common stocks, while bond funds invest mainly invarious debt instruments.Within each of these sectors, investors have a myriad of choices to consider, including:international or domestic, active or indexed, and value or growth, just to name a few.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 49
  • I will cover these topics shortly. First, however, I am going to focus myattention on the “nuts and bolts” of how mutual funds operate. Mutual Fund Operation Flow ChartMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 50
  • MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 51
  • ORGANIZATIONOrganization of a Mutual FundMutual fundsMutual fund is vehicle that enables a number of investors to pool their money and haveit jointly managed by a professional money managerSponsorSponsor is the person who acting alone or in combination with another body corporateestablishes a mutual fund. The Sponsor is not responsible or liable for any loss orMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 52
  • shortfall resulting from the operation of the Schemes beyond the initialcontribution made by it towards setting up of the Mutual Fund.TrusteeTrustee is usually a company (corporate body) or a Board of Trustees (body ofindividuals). The main responsibility of the Trustee is to safeguard the interest of theunit holders and ensure that the AMC functions in the interest of investors and inaccordance with the Securities and Exchange Board of India (Mutual Funds)Regulations, 1996.Asset Management Company (AMC)The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund.At least 50% of the directors of the AMC are independent directors who are notassociated with the Sponsor in any manner. The AMC must have a net worth of at least10 crores at all times.Transfer AgentThe AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agentto the Mutual Fund. The Registrar processes the application form, redemption requestsand dispatches account statements to the unit holders. The Registrar and Transfer agentalso handles communications with investors and updates investor records.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 53
  • SBI Mutual Fund is India’s largest bank sponsored mutual fund andhas an enviable track record in judicious investments and consistent wealthcreation. The fund traces its lineage to SBI - India’s largest banking enterprise.The institution has grown immensely since its inception and today it is Indiaslargest bank, patronized by over 80% of the top corporate houses of the country.SBI Mutual Fund is a joint venture between the State Bank of India and SociétéGénérale Asset Management, one of the world’s leading fund managementcompanies that manages over US$ 330 Billion worldwide. At SBI Mutual Fund,resources are considerably devoted to gain, maintain and sustain profitableinsights into market movements. The trust reposed on SBI-MF by over 2 millioninvestors is a genuine tribute to its expertise in Fund Management. SBI MutualFund is India’s largest bank sponsored mutual fund and has an enviable trackrecord in judicious investments and consistent wealth creation.Thus SBI-MF believes in • Proven Skills in Wealth Generation • Exploiting expertise, compounding growthOPERATIONIn eighteen years of operation, the fund has launched thirty-two schemes andsuccessfully redeemed fifteen of them. In the process it has rewarded its investorshandsomely with consistently high returns. A total of over 20, 00,000 investors havereposed their faith in the wealth generation expertise of the Mutual Fund. Schemes ofthe Mutual fund have consistently outperformed benchmark indices and have emergedas the preferred investment for millions of investors and HNI’s. Today, the fundmanages over Rs. 13,000 crores of assets and has a diverse profile of investors activelyparking their investments across 28 active schemes. The fund serves this vast family ofinvestors by reaching out to them through network of 82 collection branches, 26 investorservice centers, 21 investor service desks and 21 district organizers.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 54
  • BOARD OF DIRECTORSMr. Achal K. Gupta Mr. C A SantoshManaging Director & Chief Chief Manager - Customer Service.Executive OfficeMr. Didier Turpin Ms. Aparna NirgudeDy. Chief Executive Officer Chief Risk OfficerMr. Ashwini Kumar Jain Mr. Ashutosh P VaidyaChief Operating Officer Company Secretary & Compliance OfficerMr. Navneet Munot Mr. Parijat AgrawalChief Investment Officer Head – Fixed IncomeMr. R. S. Srinivas JainChief Marketing OfficerMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 55
  • INVESTMENT TEAM Chief Investment Officer : SanjaySinha Mr. Sanjay Sinha has taken over as Chief Investment Officer with effect from June 1, 2007. Mr. Sinha joined SBI Mutual Fund as the Head of Equities in November 2005 and has managed the largest number of funds in SBI MF covering the entire spectrum of equity funds – from index funds, diversified equity funds to sector funds. He has over 18 years of experience in the Mutual Fund Industry. Prior to joining SBI MF, Mr. Sinha worked as Senior Fund Manager with UTI Mutual Fund and was managing a corpus of over Rs 28 billion (over US$600 million). A Post Graduate from IIM Kolkatta, Mr. Sanjay Sinha has a rich experience in managing funds. Vice President - Investment Department : ThierryNardozi Thierry graduated from University of Glamorgan with a BA (Hons) in Business studies. He started his career with Irish Life in Dublin before moving to Societe Generale Asset Management. Thierry has an experience of 14 years within the asset management industry and has been involved in fund management for 10 years. Prior to joining SBI Funds Management Pvt. Ltd. in October 2007, he was handling institutional and mutual funds invested in European equities. Thierry is also a post-graduate of SFAF (European Federation of Financial AnalystsMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 56
  • Societies). Head Portfolio Management Services / Fund Manager : NipaLadiwala After obtaining a post graduate degree in Business Management and Law, Nipa worked as an equity analyst, and dealer for the offshore Funds of UTI. Subsequently she was appointed as Fund Manager for India Growth Fund, which was listed on NYSE. She was head of Research at UTI Securities before joining SBI Funds Management Pvt. Ltd. as Head of PMS. Nipa has 6 years experience as Fund Manager. She has a total of 15 years experience and has been with SBI Funds Management Pvt. Ltd since October 2005. Equity : Aashish Wakankar(Vice President & Fund Manager) Aashish Wakankar is a Bachelor of Science from University of Mumbai and holds Post Graduate Diploma in Management Studies from Jamnalal Bajaj Institute of Management Studies, University of Mumbai. He has more than 12 years of experience in capital markets ranging from institutional equities, equity research and fund management. He is associated with SBI Funds Management from December 2005. Prior to joining SBI Funds Management, he has worked with Kotak Mahindra Asset Management, Deutsche Asset Management - part of Deutsche Bank Group, and TATA TD Waterhouse Securities - a joint venture between the TATA Group, India and TD Bank Financial Group, Canada. At Deutsche Asset Management, he was responsible for advising the offshore fund Deutsche India Equity Fund, Japan and MetLife Insurance.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 57
  • Debt / Fixed Income: Parijat Agrawal (Head–Fixed Income) Parijat has done his B.E (ECE) and PGDM (IIM Bangalore). He has got 12 years experience in capital markets in areas like research, dealing and fund management. Parijat is associated with SBI Funds Management Pvt. Ltd. since July 2006. Prior to joining SBI Funds Management Pvt. Ltd., he was with State Bank of Mauritius Limited, Mumbai as Head – Treasury. Ganti N. Murthy (Asst.Vice President & Fund Manager) Mr. Murthy did his B.Sc (Hons) from Osmania University and his Masters in Financial Management from Jamnalal Bajaj Institute of Management Studies, Mumbai. He has over 12 years experience in the Mutual Fund Industry, 9 years in Unit Trust of India and 3 years in Cholamandalam AMC Ltd. Prior to joining SBI Funds Management Pvt. Ltd., he was with Cholamandalam Mutual Fund as Fund Manager – Debt. OffshoreFunds Anand Gupta Anand holds charter from CFA Institute, USA and Institute of Chartered Accountants of India. Before joining SBI Funds Management in October 2005, Anand has worked with HSBC securities and domestic brokerage house as equity research analyst for 3 years. Anand has 5 years of experience in capital markets and 3 years of experience in Audit & Business consulting.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 58
  • PRODUCT PORTFOLIOMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 59
  • Distribution channel in SBIMFSBI asset management company mainly emphasize on relationship building with itscustomers like distributors, Banks, individual investors etc. The distribution channel ofSBIMF is as followsOverview of Retail channelThe alternative distribution channels that are available are selling, or using leadmanagers and brokers along with sub-brokers, for selling units. To be successful in thismission, the industry will have to ensure that only those agents that have convictionabout mutual funds being the most versatile and an ideal investment vehicle forinvestors are encouraged. This is because, there is a sense of loyalty amongst agents, inMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 60
  • anticipation of getting continuous business throughout the year, and thetrust and credibility that has been generated or will be generated by being loyal to oneinstitution. Savings in advertisement and publicity expenses is also affected, as the targetof communication is restricted to a few groups of individuals, since the agent willfunction as a facilitator, informer and educator. The reduced cost benefit will ultimatelyaccrue to the investor in the form of higher returns.In such a system, one achieves brand loyalty through continuous interaction betweenagents and investors. Building a team of agents and other distribution network such asdistribution and collecting agents and franchise offices, will provide the investor theopportunity of having continuous interaction and contact with the mutual fund.Therefore, retail distribution through the agents is a preferred alternative for distributingmutual fund products.As my vertical in the company is retail which includes IFA’s (Individual financialadvisors) and National Distributors. The retail channel is subdivided into 5 regions. National Distributors Nitin Kumar West & Central Delhi Yogesh Kumar & Sumit East Delhi Suyash South Delhi Amit Srivastava North Delhi Abhishek Singh Meerut Ajay Chauhan Agra Jitin & Amir RazaMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 61
  • Relationship building with active and inactive distributors (IFAs)During my internship tenure of more than 8 weeks with SBIMF, the main task that hasbeen assigned to me was relationship building, for which I have personally visited bothactive and inactive distributors. AMC have around 2000 distributors in Delhi-NCRregion which is sub divided into 5 regions namely:- 1) North Delhi 2) South Delhi 3) East Delhi 4) West Delhi 5) Central DelhiI have covered some areas of East, West and Central Delhi. The purpose behind thesevisits was to build a relation with the distributors on the behalf of AMC which in turnhelp in generating more investment. In case of inactive distributors the motive was tofind out the reasons for which they stopped dealing with SBIMF. In this cumbersomeexercise of relationship building I made several observations from the feedback which Igot from the distributors and are highlighted below.NEW FUND OFFER (SBI GETS)SBI Mutual Fund had launched a New Fund Offer of the SBI Gold Exchange TradedScheme (SBI GETS). The scheme helped investors to invest in gold through theconvenience of their demat account.They could invest in as low as one gram of gold,since one unit of SBI GETS would track the price of even one gram of gold. Post-NFO,SBI GETS would be listed on the National Stock Exchange. The investors could be ableto easily trade the units of the scheme, just like an equity stock, through an NSE Brokeror their online trading account. The NFO of SBI GETS was open till 28th April, 2009.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 62
  • OTHER WORK EXPERIENCE AT SBI MUTUAL FUNDINFORMATION SHARING: • Apart from meeting the distributors the other way to keep in touch with them is to keep updating them about the latest information like NAVs, new products, best performing funds, initiatives like organizing Refresher Courses etc. All this information sharing is done by calling them personally.OPERATIONAL SERVICE: • All AMCs in India uses CAMS a software package to provide services to its customers.COMPUTER AGE MANAGEMENT SERVICES PVT. LTD. (CAMS) offers acomprehensive package of Transaction Processing and Customer Care services to theMutual Fund industry, and has been constantly raising the bar in customer service since1995. Setup in 1988 as a Software Developer, CAMS moved from Capital MarketTransaction Processing (processing Equity IPOs) to Customer Care and TransactionMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 63
  • Processing for Mutual Funds. CAMS today has the most appropriate andadvanced technology employed, with the best network for service delivery through itsnetwork of Service Centers in all major cities in India. At SBIMF we have learnt thesoftware and worked on it, the major things that we have done using this software are 1) Mailing statements to the clients/investors. 2) Finding out the AUM of distributors. 3) Verification of dividend payment. 4) Brokerage payments. • Recording and updating: After meeting the distributors I use to update their records in our database like changing of address, telephone no. etc.LEARNING’S DURING THE PROJECT:During this internship of three months, apart from project I have learnt several importantskills and gained knowledge which is very important, and according to me is the bestlearning during the Summer Internship Project, some of them are covered below:1) INTERPERSONAL SKILLS: While visiting the distributors with I have learnt the way of pitching a customer, how to represent the funds, how to handle various queries from them and several others.2) COMMUNICATION SKILLS: During this tenure of three months they have provided me various opportunities to improve my communications skills. It includes presentations on various topics like BUDGET’ 08-09, ADR & GDR etc. and group discussions.3) KNOWLEDGE ENHANCEMENT: With practices like NEWS submission on regular basis, assignments and daily sensex watch helped me to improve my knowledge regarding both stock market and economic development of the country.4) TEAM BUILDING:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 64
  • While working with retail team in SBIMF I have learnt the art of team building and working in a group, the way they work and move ahead as a team helps them in increasing the AUM of the company and achieving their targets.5) APPLICATION OF KNOWLEDGE: Another important skill that I have learnt during the project is application of knowledge to real life situations such as handling the investors who have knowledge about the industry, use of EXCEL to make SIP calculators and NAV trackers to attract the customers. 2.REVIEW OF LITERATURE June 2009 This was one of the best months for stocks and commodities in a long time. Sensex posted a gain of 28% as both foreign and domestic investors poured money. It is up a whopping 79% from the low witnessed on March 9 this year. The scale and speed of stock market gain has taken most investors by surprise and ‘left out feeling’ is leading to massive buying in high-beta names. Markets caught fireafter the announcement of election results and further fuel was added by positivenews flow from global markets.The barrage of liquidity is finally finding its way into riskier assets across markets.Credit spreads collapsed, high yield currencies gained against safe heavens and bondyields rose as investors migrate from defensives to risk-assets. Volatility and riskMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 65
  • premiums are touching multi-month low as confidence is coming back into financialmarkets. Incremental economic data is less negative, pile of cash is humongous andpolicy remains extremely supportive. As we have been writing that the scale,magnitude and synchronized nature of policy response this time is simplyunprecedented in history. Fundamental problems of global imbalances that led to thiscrisis can’t get resolved so easily and one might argue that the policy response so faris something like treating a ‘hangover’ with more alcohol. But the fact remains, thatin the short term, the sheer power of liquidity can take prices of risk assets to levelsfar beyond what fundamentals may justify.Commodity prices have also shot up with Reuters CRB index posting one of thebiggest monthly gain since 1974. Normally, commodities perform during the latestage of the bull market, however, investors seem to be playing a paper currencydebasement play through investment in real assets. While central bankers are stillmaintaining probably the most accommodative policy ever to combat deflation,market wisdom as reflected in prices seem to be getting worried about onset ofinflation.Indian equities were one of the best performing market this month as investorsjumped in after the decisive verdict in favor of UPA government. ForeignInstitutional Investors invested over $ 4 billion in the month of May and their year-to-date investment has also crossed $ 4 billion. Investors draw comfort from the factthat a major victory for UPA means greater ability to carry out critical reforms.Immediate priority for the government would be to provide adequate fiscal stimulusin order to cushion the economy against headwinds from the global downturn. Thefinance minister would have to balance between keeping the fiscal deficit undercontrol and providing more fiscal stimulus. The government must show a roadmap tobring down fiscal deficit over the medium term. Some of the long pending reformsrelated to FDI in sectors like insurance and retail, rationalization of subsidies,introduction of GST from 2010-11, continued thrust on agriculture and rural sectorand restarting disinvestment programme should be on the agenda. Apart from theMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 66
  • physical infrastructure, there should be equal focus on building the socialinfrastructure and higher outlays on education and healthcare which would go a longway in building a solid foundation for sustained economic growth. The other point wewould like to highlight is that the focus for the government this time should be onoutcome, not outlays; execution, not just big bang announcements.This election is a game changer. At a time when the global economy is faced withsevere challenges, the world is looking for new engines of economic growth. Indiawith its demographic advantage, high savings rate and a domestic consumption andinvestment oriented economy has the potential to de-couple from the rest of the worldand deliver higher growth rate on a sustained basis. At this time, we needed a pro-reforms and stable government which can push structural reforms to unleash the fullpotential of Indian economy and corporate sector. People of India have delivered thatdecisive mandate.Our sectoral bets and stock picks in equity funds are rightly positioned to takeadvantage of the upturn in equity market. We have been focussing on investing incompanies leveraged on domestic consumption and infrastructure build up. While onecan expect liquidity inflows from domestic and foreign investors, several corporatesare likely to use the opportunity to raise equity. We will continue to keep a closewatch on evolving economic scenario, policy announcements and valuation.Bond yields moved up on fears of higher government borrowing. Run up incommodity prices and increase in bond yields globally have also weighed on thesentiments. Interest rates are likely to be range-bound for some time and will offermore trading opportunities.Over the last several months, we have consistently been advising investors to focuson long term growth potential of Indian economy and take advantage of the downturnto build exposure to equities. The recent rally in equity markets further highlights theimportance of discipline in asset allocation in investor’s portfolios.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 67
  • Regards,Navneet MunotChief Investment OfficerSBI Funds Management Pvt. LtdABSTRACT (1)Investments goals vary from person to person. While somebody wants security, others mightgive more weightage to returns alone. Somebody else might want to plan for his childseducation while somebody might be saving for the proverbial rainy day or even life afterretirement. With objectives defying any range, it is obvious that the products required willvary as well.Indian Mutual Funds industry offers a plethora of schemes and serves broadly all types ofinvestors. The range of products includes equity funds, debt, liquid, gilt and balanced funds.There are also funds meant exclusively for young and old, small and large investors.Moreover, the setup of a legal structure, which has enough teeth to safeguard investors’interests, ensures that the investors are not cheated out of their hard earned money. All in all,benefits provided by them cut across the boundaries of investor category and thus create forMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 68
  • them, a universal appeal.Investors of all categories could choose to invest on their own in multiple options but opt forMutual Funds for the sole reason that all benefits come in a package. The Mutual Fundindustry is having its hands full to cater to various needs of the investors by coming up withnew plans, schemes and options with respect to rate of returns, dividend frequency andliquidity.In view of the growing competition in the Mutual Funds industry, it was felt necessary tounderstand the working of mutual funds industry in India, its merits and demerits, varioustypes of schemes available in the Indian market and the investor’s orientation towards MutualFunds i.e. their pattern of risk appetite and preferences in various schemes and plans. Apartfrom this the report also includes the details of the work that I have learnt during the project,which according to me is the best part of the project as it provided me a practical exposure tothe Mutual fund industry and the working of an AMC.ABSTRACT (2)Antonella Basso and Stefania Funari of Dipartimento di Matematica Applicata “B.de Finetti”, Università di Trieste, Piazzale Europa, 1, 34127 Trieste, Italy and Dipartimento diMatematica Applicata, Università Ca Foscari di Venezia, Dorsoduro 3825/E, 30123 Venezia,Italy respectively discussed in this paper about “A data envelopment analysis approach tomeasure the mutual fund performance.” In this paper they present a model which can beused to evaluate the performance of mutual funds. This model applies an operational researchmethodology, called data envelopment analysis (DEA), which allows to measure the relativeefficiency of decision making units. This approach allows to define mutual fund performanceindexes that can take into account several inputs and thus consider different risk measuresand, above all, the investment costs (subscription costs and redemption fees). Moreover, theDEA approach can naturally envisage other output indicators, in addition to the mean returnconsidered by the traditional indexes. Therefore, a generalized version of the DEA mutualMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 69
  • fund performance indexes is defined, too, which includes among the outputs a stochasticdominance indicator that reflects both the investors preference structure and the timeoccurrence of the returns. In addition, the procedure allows to identify, for each mutual fund,a composite portfolio which can be considered as a particular benchmark. The performanceindexes proposed are tested on empirical data.ABSTRACT (3)Peter Tufano and Mathew Sevick of Harvard Business School, Boston and MonitorCompany, Inc., Cambridge respectively discussed in this paper about “Board structure andfee-setting in the U.S. mutual fund industry”. This study uses a new database to describethe composition and compensation of boards of directors of U.S. open-end mutual funds.They use these data to examine the relation between board structure and the fees charged by afund to its shareholders. They find that shareholder fees are lower when fund boards aresmaller, have a greater fraction of independent directors, and are composed of directors whosit on a large fraction of the fund sponsors other boards. They find some evidence that fundswhose independent directors are paid relatively higher directors fees approve highershareholder fees.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 70
  • ABSTRACT (4)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 71
  • ABSTRACT (5)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 72
  • ABSTRACT (6)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 73
  • ABSTRACT (7)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 74
  • ABSTRACT (8)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 75
  • 3. RESEARCH METHODOLOGYMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 76
  • NEED OF THE STUDY: • The need of the study aimed to know the awareness in the public about the various products and services provided by S.B.I-Mutual Fund. • A study was also conducted to measure the performance of various funds on the basis of various performance measuring ratios such as Sharpe ratio, total expense ratio, standard deviation, Beta and R-squared. • The study was basically undertaken to understand the financial needs of the customer and to provide or suggest them products and services according to their financial needs. • The study was undertaken to find out the Banking channel at SBI Mutual Fund.Analysis of the funds on the Basis of various ratios.PERFORMANCE EVALUATIONMutual Fund industry today, with about 34 players and more than five hundredschemes, is one of the most preferred investment avenues in India. However, with aplethora of schemes to choose from, the retail investor faces problems in selectingfunds. Factors such as investment strategy and management style are qualitative, but thefunds record is an important indicator too. Though past performance alone cannot beindicative of future performance, it is, frankly, the only quantitative way to judge howgood a fund is at present. Therefore, there is a need to correctly assess the pastperformance of different mutual funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 77
  • Worldwide, good mutual fund companies over are known by their AMCsand this fame is directly linked to their superior stock selection skills. For mutual fundsto grow, AMCs must be held accountable for their selection of stocks. In other words,there must be some performance indicator that will reveal the quality of stock selectionof various AMCs.Return alone should not be considered as the basis of measurement of the performanceof a mutual fund scheme, it should also include the risk taken by the fund managerbecause different funds will have different levels of risk attached to them. Riskassociated with a fund, in a general, can be defined as variability or fluctuations in thereturns generated by it. The higher the fluctuations in the returns of a fund during agiven period, higher will be the risk associated with it. These fluctuations in the returnsgenerated by a fund are resultant of two guiding forces. First, general marketfluctuations, which affect all the securities, present in the market, called market risk orsystematic risk and second, fluctuations due to specific securities present in the portfolioof the fund, called unsystematic risk. The Total Risk of a given fund is sum of thesetwo and is measured in terms of standard deviation of returns of the fund. Systematicrisk, on the other hand, is measured in terms of Beta, which represents fluctuations inthe NAV of the fund vis-à-vis market. The more responsive the NAV of a mutual fundis to the changes in the market; higher will be its beta. Beta is calculated by relating thereturns on a mutual fund with the returns in the market. While unsystematic risk can bediversified through investments in a number of instruments, systematic risk cannot. Byusing the risk return relationship, we try to assess the competitive strength of the mutualfunds vis-à-vis one another in a better way.In order to determine the risk-adjusted returns of investment portfolios, several eminentauthors have worked since 1960s to develop composite performance indices to evaluatea portfolio by comparing alternative portfolios within a particular risk class. The mostimportant and widely used measures of performance are:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 78
  • • The Treynor Measure • The Sharpe MeasureThe Treynor MeasureDeveloped by Jack Treynor, this performance measure evaluates funds on the basis ofTreynors Index. This Index is a ratio of return generated by the fund over and aboverisk free rate of return (generally taken to be the return on securities backed by thegovernment, as there is no credit risk associated), during a given period and systematicrisk associated with it (beta). Symbolically, it can be represented as:Treynors Index (Ti) = (Ri - Rf)/Bi.Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of thefund.All risk-averse investors would like to maximize this value. While a high and positiveTreynors Index shows a superior risk-adjusted performance of a fund, a low andnegative Treynors Index is an indication of unfavorable performance.The Sharpe MeasureMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 79
  • In this model, performance of a fund is evaluated on the basis of SharpeRatio, which is a ratio of returns generated by the fund over and above risk free rate ofreturn and the total risk associated with it. According to Sharpe, it is the total risk of thefund that the investors are concerned about. So, the model evaluates funds on the basisof reward per unit of total risk. Symbolically, it can be written as:Sharpe Index (Si) = (Ri - Rf)/SiWhere, Si is standard deviation of the fund.While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of afund, a low and negative Sharpe Ratio is an indication of unfavorable performance.Comparison of Sharpe and TreynorSharpe and Treynor measures are similar in a way, since they both divide the riskpremium by a numerical risk measure. The total risk is appropriate when we areevaluating the risk return relationship for well-diversified portfolios. On the other hand,the systematic risk is the relevant measure of risk when we are evaluating less than fullydiversified portfolios or individual stocks. For a well-diversified portfolio the total riskis equal to systematic risk. Rankings based on total risk (Sharpe measure) andsystematic risk (Treynor measure) should be identical for a well-diversified portfolio, asthe total risk is reduced to systematic risk. Therefore, a poorly diversified fund thatranks higher on Treynor measure, compared with another fund that is highly diversified,will rank lower on Sharpe Measure.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 80
  • TERMINOLOGY:ALPHA - The alpha ratio illustrates the effect of the portfolio manager’s choice on thefunds return. The greater the alpha, the better a return has the investment yieldedcompared with other investment objects with the same market risk. Alpha is anannualized return measure of how much better or worse a fund’s performance is relativeto an index of funds in the same category, after allowing for differences in risk.BETA – A ratio that measures the market risk of securities or a fund. If the beta ratioexceeds one, the fund is more sensitive than funds in general to the fluctuations of thestock market. The beta may also be negative, which means that the value of the fundwill, on average, move to the opposite direction than the general market development.Beta measures the sensitivity of rates of return on a fund to general market movements.Beta measures the volatility of the fund, as compared to that of the overall market. TheMarkets beta is set at 1.00; a beta higher than 1.00 is considered to be more volatile thanthe market, while a beta lower than 1.00 is considered to be less volatile.Beta measures the volatility of the fund’s value relative to the volatility of the fund’sbenchmark value. The Beta coefficient indicates the percentage change of the fund’svalue when the benchmark value changes by one percentage point.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 81
  • Example: When the beta of the fund is 0.8, the value of the fund rises by 0.8 % when thebenchmark index rises by one percent. Correspondingly, when the benchmark indexfalls by one percent, the value of the fund falls on average by 0.8 %.The Beta coefficient is a key parameter in the capital asset pricing model (CAPM). Itmeasures the part of the assets statistical variance that cannot be mitigated by thediversification provided by the portfolio of many risky assets, because it is correlatedwith the return of the other assets that are in the portfolio.Beta is also referred to as financial elasticity or correlated relative volatility, and can bereferred to as a measure of the assets sensitivity of the assets returns to market returns,its non-diversifiable risk, its systematic risk or market risk. On an individual asset level,measuring beta can give clues to volatility and liquidity in the marketplace. On aportfolio level, measuring beta is thought to separate a managers skill from his or herwillingness to take risk.The beta movement should be distinguished from the actual returns of the stocks.STANDARD DEVIATIONMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 82
  • Statistic that measures the tendency of data to be spread out. Accountants can makeimportant inferences from past data with this measure. The standard deviation, denotedwith S and read as sigma, is defined as follows:CORRELATIONIT shows the linear dependency between fund returns and the returns of the benchmarkindex. Correlation may vary between -1 and 1. The dependency is complete if the fund’scorrelation to the benchmark index is 1. If the correlation is zero, there is nodependency.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 83
  • Analysis of Funds on the basis of various ratios. Portfolio Std. Beta R-squared Sharpe Deviation ratio Turnover Magnum 30.02% 0.88 0.96 -0.34 18% Taxgain Magnum 36.19% 1.01 0.87 -0.57 43% Global Fund Magnum 31.33% 0.91 0.96 -0.24 74% Contra Magnum 37.69% 1.07 0.93 -0.22 64% Comma SBI NA NA NA NA 1146%MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 84
  • Arbitrage MSFU IT 33.03% 0.82 0.61 -0.80 16% Magnum 30.09% 0.86 0.93 -0.31 47% MultiplierCONCLUSION:From the above table we can clearly see the comparison between various funds of SBIMutual Fund. In this higher the value of Sharpe and Treynor, better is the fund. • Magnum Taxgain • Magnum Multiplier and • Magnum Contraare having beta values of 0.88, 0.86 and 0.91 respectively which means that these fundsare more sensitive and will give more returns than market when market are in goodphase but give negative returns more intensely than market when market in bad phase.High and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, alow and negative Sharpe Ratio is an indication of unfavorable performance. If theSharpe figure is positive, the risk taken has paid off, and if the figure is negative, thereturns are lower than the risk-free rate.  Magnum Taxgain,  Magnum Contra and  Magnum MultiplierAre the three funds which are best among all in terms of risk adjusted returns.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 85
  • A scheme with high Treynor ratio such as Equity scheme will enjoy apremium when the markets are bullish and will be affected negatively when the marketsare bearish.So in the bullish market Magnum Global and Magnum Multiplier are the best funds toopt for getting better returns.SCOPE OF THE STUDY:Geographical scope-The geographical scope of the study is not limited. This study can be implemented inany part of the country; though the samples taken were from SBI Mutual Fund branchoffice at Barakhamba Road, and various banks in the west Delhi region were visited toknow their response.Functional scope-This study can be used to understand the behavioral aspect of people who invest, what istheir investment potential and how much risk can they take. The study throws some lighton seven best performing schemes of S.B.I-Mutual Fund.LIMITATIONS OF THE STUDY • Limited information through secondary research report is basic hindrance in finding out the true results related to investments in mutual fund schemes by an investor. • Limited time was another constraint. • Geographical locations.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 86
  • • Extreme variability in MARKET. • Unawareness among investors is next in the line. The investor does not want to invest in Mutual Funds because of the myth that investment in these funds lead to insensitive returns. They think that market is highly volatile and will not be able to give him the secured returns. • The investor also does not want to invest because of the greater risk attached with equity. Rather, he wants to invest in a fixed instrument from where he may be able to get secured returns instead of having unasserted returns.DATA COLLECTION METHOD:Primary data collection:In dealing with real life problem it is often found that data at hand are inadequate, andhence, it becomes necessary to collect data that is appropriate. There are several ways ofcollecting the appropriate data which differ considerably in context of money costs, timeand other resources at the disposal of the researcher. • Primary data can be collected either through experiment or through survey.The data collection for this study was done in the following manner:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 87
  • • Through personal interviews:-A rigid procedure was followed and we were seeking answers to many pre-conceivedquestions through personal interviews. • Through questionnaire:-Information to find out the investment potential and goal was found out throughquestionnaires.SAMPLING METHOD ADOPTED:The sampling method chosen is Area Sampling. As the primary sampling unitrepresents a cluster of units based on geographic area. The geographical area chosen forindividual customers was at SBI Mutual Fund main office at Barakhamba Road.It is basically a non-probability sampling procedure which does not afford any basis forestimating the probability that each item in the population has of being included in thesample.Under non-probability sampling the organizers of the enquiry purposively choose theparticular units of the universe for constituting a sample on the basis that the small massthat they so select out of a huge one will be typical or representative of the whole.Analysis of Individual InvestorsDATA ANALYSISPOPULATION:-MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 88
  • According to the data collection method adopted, the size of thepopulation is 100.Thus, N=100After collecting the data the following facts were found out:-Out of the 100 people the following percentage composition were interested in thefollowing products:- • MUTUAL FUNDS -44% • SHARE/BONDS- 23% • LIFE INSURANCE-7% • REAL ESTATE-6% • COMMODITIES-8% • NSC (NATIONAL SAVING SCHEME)-10% • OTHERS-2% ANALYSIS OF THE PREFERENCES OF THE RESPONDENTS:-MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 89
  • The data collected above shows that approximately 65% of people are aware of themarket in general and 44% are aware of Mutual Funds in particular. Thus furtheranalysis is made on the basis of data collected; which categories of people are moreaware and inclined towards Mutual Fund. Therefore, further analysis is made as below: • Analysis according to Age • Analysis according to Income • Analysis according to OccupationMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 90
  • Analysis according to Age:Findings: • As per the above analysis, only 14% of respondents who are below 35 years are interested to invest in SBI-MF. The reasons being that there are more needs to be fulfilled for this age group viz. education, entertainment etc. and therefore these people do not have surplus funds to invest in saving schemes or Mutual Funds etc. • The persons within the age group of 35-50 years only 58% of respondents are interested to invest in SBI-MF. These persons have more investing potential than their counterparts and they want to increase their income through investing in Mutual Funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 91
  • • The persons having the age equal to or above 50 years, only 28% of respondents are interested to invest in SBI-MF. The reasons being that these persons are more inclined to age-old principals and want to invest in schemes giving fixed returns as compared to investing in Mutual Fund.Analysis according to Savings from income:Income Percentage (%)Low 34%Medium 18%High 48%Findings: • The above analysis shows that Low income category is less interested to invest in SBI-MF as compared to high income category. The reason being that these people have to fulfill their basic needs as first. The other reason is that low income category people are having more consumption as compared to their savings. • Among Medium income category people, only 18% of the respondents want to invest in SBI-MF. The first and foremost reason behind this is that these people are risk averse and want to invest in those products from which they must get assured returns as compared to investing in Mutual Funds. • Among High income category people, only 48% of the respondents want to invest in SBI-MF because these people have enough resources for their well being and it does not hurt them to invest a large chunk of their resources in Mutual Funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 92
  • Analysis according to Occupation:Findings: • From the above analysis, it has been learned that only 49% of respondents who are in service are interested to invest in SBI-MF because these people are well aware of Mutual Funds and Stock Market. Service category people want to secure their future and therefore showed interest in investing under risky ventures. • Businessmen are also interested to invest in SBI-MF. Only 32% of respondents who are in business invested in SBI-MF.These people invest more in Debt schemes than in Equity schemes. This is because Debt schemes promise a less, but secure return over equity schemes which are more risky. Moreover, the risk profile of business men is quite moderate.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 93
  • • Professional are much interested in investing the Mutual Funds as compared to their counterparts. The main reason for such thing is the complete knowledge of o Stock markets o Past performance o Consistent returns o Measurement of risk o Finance knowledgeBut with the current performance of Mutual Funds on the stock market, less people arewilling to take the huge risk of losing money.Analysis of different category persons about different schemes:- SBI MAGNUM TAX GAIN SCHEME (MTGS)Tax Planning Mutual Funds have come into their own as a compelling cocktail ofsavings and returns, surpassing larger rivals such as equity funds in asset growth ratesover the past year and-a-half. Thus, service category is more inclined towards MTGSbecause of the tax exemption and phenomenal returns. This scheme was equallyMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 94
  • supported by the SBI Tax Advantage series I (new NFO), a close endedfund offered by SBI MF. SBI MAGNUM GLOBAL FUND (MGLF) Sales 23 46 servicemen businessman 41 professionalMGLF is an open-ended equity scheme investing in stocks from selectedindustries with high growth potential. Due to the high growth potential andinvesting the resources in money market instruments, businessmen andprofessionals are more inclined towards MGLF.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 95
  • MAGNUM SECTOR UMBRELLA- CONTRA FUND 39 44 servicemen businessman frofessional 17Due to the maximum growth opportunity through equity investments in stocks ofgrowth oriented sectors of the economy, professionals like the MSFU-Contrafund the most. Servicemen also like it because of huge untapped growth potentialof the scheme. And businessmen like this scheme less as compared to theircounterparts because businessmen can’t block their money for long time and thisscheme provides return in long term.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 96
  • Analysis on the basis of purchase of investmentThe above graph shoes us that people purchase funds, when the price of the fundsuddenly increases. This is because of their expectation for the fund to rise morein the future.Next are the investors who invest when the price (NAV) of the fund is slowly butsteadily increasing. They do this, thinking that the fund will further raise in thefuture at the same pace.24 % of the investors invest their money when the price of the fund suddenly decreases.They do this in order to take benefit of the decreased cost, in anticipation that they maysell it in the future for a higher price.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 97
  • FINANCIAL BEHAVIOR OF RESPONDENTS:INVESTMENT OBJECTIVES:It can be seen from the following graph that the main investment objective of most ofthe investors is good returns and capital appreciation..CHANNELS USED BY RESPONDENTS FOR INVESTING: From study it caneasily be inferred that majority of respondents (70%) now invest directly in mutualfunds especially after SEBI guidelines came recently that says there will not be anyENTRY LOAD for investors investing in mutual fund schemes directly.INVESTMENT HORIZON: From the study it can be concluded that majority ofrespondents invest in mutual funds from “More than three year” perspective (53%),MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 98
  • that’s means once a investor comes to your service he will be there for atleast three years, therefore it is very essential today that AMCs and especially SBIshould focused on innovating new ways to serve the customers like giving SMS time totime, giving value added services like free insurance, debit cards etc.RISK PREFERENCES : The following chart explains that majority of investors (57%)were ready to take moderate level of risk by investing in mutual funds and also rest ofthe respondents(43%) go for “High Risk and High Return” category. Not a singlerespondent opt for Low risk and low return category that again proved that it is a myththat Indian Investors are more risk averse when it comes to investment in Stock Marketsor Mutual Funds.SCHEME PREFERENCES:ON THE BASIS OF ASSET CLASS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 99
  • When it comes to scheme preferences majority of the investors preferBalanced Schemes (43%), followed by Equity Schemes (34%) then debt (12%) andfinally FMP’s (11%). It shows that there is a huge potential for debt instruments in themarket which is unearthed by investors due to its complexity, low awareness etc.PREFERABLE ROUTE TO INVESTING IN MUTUAL FUNDS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 100
  • As above chart clearly explains that majority of respondents (57%) take self decisionones they start investing in mutual funds. Only 10 % of respondents take help ofBrokers/Advisors when it comes to final decision of investing. Therefore, it shows thatAMCs in general and SBI in particular have to be more informative so that they canprovide best material, service and information to facilitate subsequent investment ofinvestors.SCHEME PREFERENCES:ON THE BASIS OF STRUCTURE:When it come to scheme preference on the basis of its structure, majority of retailinvestors prefer “Open Ended Scheme “ primarily due to flexibility of redemptions,investments, good return and liquidity. None of the investors prefer “Interval Scheme”;in fact some of the retail investors were confused about the very name of “IntervalSchemes.”MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 101
  • SAVING HABITS:When it comes to Saving Habits of investors it can be seen that majority of respondentssaves between 15%-20% p.a. basis followed by “above 25%” category (20%).Otherscategories like 10-15 and 20-25 are equally preferred by respondents but it was apositive clue that only 7% of respondents save below 5%.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 102
  • SAVING PREFERENCES:Among saving preferences following results came out:Using Method Of Rank Order as given by Cattell,1903 and Spearman,1904 thechoices were ranked and then as per their Rank Sum Score and Z-Values “MutualFunds” emerges as best choice among respondents. Though it is given 2 nd Rank bymajority of investors. Following MFs, “Life insurance” and “Shares and Debentures”are the second best choices. Surprisingly “Gold and Jewellery” is the most unlikelybest choice among respondents.Most Popular Fund from SBI: Up till this stage the winner is “MAGNUM TAXGAIN” which is preferred by majority of respondents (60%), due to its three in onebenefits which are as follows:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 103
  •  Tax Benefit Good Return Capital AppreciationSATISFATION LEVEL WITH SBI:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 104
  • Form above chart it can be inferred that up to this stage majority of respondents (47%)are considerably satisfied when they were asked about overall experience with SBIMutual Funds including funds, returns, services etc., As can be seen 33% of theinvestors are “Reasonably Satisfied” which means that there is more to do on SBIbehalf for Customer Satisfaction.Interaction with individual/Direct (Walk in) investorsApart from maintaining relationship with the distributors I have also deal with thecustomers who are coming directly to the AMC for investment which provided me anexposure to selling. It also helped me in learning how to deal with different type ofcustomers, how to insist them for making investments etc. while dealing with them Ihave done following tasks:- a) Explain them various funds/schemes according to their objective. b) Helping them in filling the forms. c) Solving their problems related to statement, redemption etc. d) Insisting them to invest in Systematic Investment Plans (SIP).While interacting with them I have tried to find out various factors effecting theirinvestments in mutual funds, for this I have carried out a survey by requesting them tofill a questionnaire a sample of which I have attached in the annexure. On the basis ofthat that questionnaire I have analyzed various points which are discussed below.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 105
  • INVESTMENT BEHAVIOURMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 106
  • INTRODUCTION:The significant outcome of the government policy of liberalization in industrial andfinancial sector has been the development of new financial instruments. These newinstruments are expected to impart greater competitiveness, flexibility and efficiency tothe financial sector. Growth and development of various mutual fund products in Indiancapital market has proved to be one of the most catalytic instruments in generatingmomentous investment growth in the capital market. There is a substantial growth in themutual fund market due to a high level of precision in the design and marketing ofvariety of mutual fund products by banks and other financial institution providinggrowth, liquidity and return. In this context, prioritization, preference building and closemonitoring of mutual funds are essentials for fund managers to make this the strongestand most preferred instrument in Indian capital market for the coming years. With thedecline in the bank interest rates, frequent fluctuations in the secondary market and theinherent attitude of Indian small investors to avoid risk, it is important on the part offund managers and mutual fund product designers to combine various elements ofliquidity, return and security in making mutual fund products the best possiblealternative for the small investors in Indian market.Researchers have attempted to study various need expectations of small investors fromdifferent types of mutual funds available in Indian market and identify the risk returnperception with the purchase of mutual funds. Various multivariate techniques areapplied to identify important characteristics being considered by the Indian investors inthe purchase decision.The liberalization of the financial sector has sent signals to a wave of changes in savingsand investment behavior adding a new dimension to the growth of financial sector. TheIndian financial system in general and the mutual fund industry in particular continue toMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 107
  • take turnaround from early 1990s. During this period mutual funds havepooled huge investments for the corporate sector. The investment habit of the smallinvestors particularly has undergone a sea change. Increasing number of players frompublic as well as private sectors has entered in to the market with innovative schemes tocater to the requirements of the investors in India and abroad. For all investors,particularly the small investors, mutual funds have provided a better alternative to obtainbenefits of expertise- based equity investments to all types of investors.OBJECTIVES OF THE STUDY:The investors do not evaluate all possible product attributes while making a choice, butthe marketer’s search is for identification of “The key buying criteria” or “The keychoice criteria” which are defined as certain features of a product offering that areclosely associated with preferences. This study aims at tracking investor’s preferencesand priorities towards different types of mutual fund products. An attempt has also beenmade to differentiate between the factors which have been considered by the investorswho have been investing for less than a year and the ones who have been investing formore than a year.LIMITATIONS OF THE STUDY: 1) Sample size is limited to 100 only thus sample size does not adequately represent the national market. 2) Most of the investors were those who came to SBIMF directly, thus there may be a chance of biasness towards SBIMF’s funds. 3) This study has not been conducted over half month period in which most of the time it was slump and fluctuations in the market. Thus the responses of the investors are likely to be influenced by the market conditionsMETHODOLOGY:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 108
  • The study is based on a survey of 100 respondents through a questionnaire coveringdifferent groups of investors but I could collect 97 complete questionnaire frominvestors out of which 90 were taken as an effective sample and the data obtained wereanalyzed by using, Factor analysis and Discriminant analysis. The questionnaire hasbeen attached in the Annexure.RELIABILITY AND VALIDITYIn order to check the reliability and validity of the data, we had kept some similar kindof variables in the questionnaire like fund performance and fund manager performanceas well as security and attitude towards risk. In order to increase the reliability andvalidity, we have excluded the questionnaires filled by those respondents who had avaried opinionThese analysis methods are used for the following reasons: 1) Factor analysis is used to classify similar variables under a broad heading, as the numbers of independent variables are very high. 2) Discriminant analysis is used to highlight variables which effect the decision of people investing for less than a year and people who are investing for more than a year.We are going to see how these selected factors affect the investment behaviour of theexisting & potential investors. Above mentioned statistical tools have been used toanalyze this thing.As we use Factor analysis we can reduce the number of factors todraw some clear picture for the investors who are looking to invest irrespective ofMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 109
  • market conditions. Factor analysis will recognize similar factors & clubthem into one generalized factor and this will help any researcher to observe the mostimportant factors that contribute most to the investment behaviour of the investors.DESCRIPTIVE WEIGHTED FACTOR COUNTINGMETHODWe have ranked the independent variables affecting the buying behavior of consumersby adding the weighted factors. Firstly, we have counted the responses under each scale.Secondly, we have assigned weights to each of the scale giving least weight to 1 andmaximum weight to 5. Finally, we have added all the weighted responses and rankedaccordingly i.e. in descending order. RANK INDEPENDENT VARIABLES 1 2 3 4 5 1 Historical Performance 2 4 9 42 35 2 Fund Return Over Market Return 3 5 12 31 41 3 Advisor Influence 2 5 25 35 25 4 Tax Benefit 6 11 13 29 33 5 Lock In Period 1 5 31 32 23 5 Reputation 3 5 29 28 27 7 Security 5 5 20 41 21 8 Type Of Scheme 4 6 24 35 23 9 Regular Income 8 10 15 32 27 10 Aum 3 7 29 36 17 11 Convenience 4 6 30 35 17 12 Attitude Towards Risk 3 10 32 30 17 13 Fees 6 12 23 31 20 13 NAV 6 11 25 30 20 15 Fluctuation In Equity Market 4 18 18 34 18 16 Personal Attention 4 10 35 32 11MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 110
  • 17 Prior Experience 11 11 25 29 16 18 Prospectus 10 20 24 25 13 19 Family Recommendation 15 20 27 24 6 20 Fund Rating 24 28 13 15 12 21 Internet 15 30 27 11 9 22 Promotional Campaign 22 25 26 14 5 23 Lot Size 20 30 25 10 7 24 Performance Of Fund Manager 25 30 26 6 5 25 Economic &Market Conditions 24 35 21 8 4 26 Transparency 33 34 18 5 2FACTOR ANALYSIS:As the numbers of independent variables are very high, we have tried to classify similarvariables under a broad heading through factor analysis. In KMO adequacy level is 50%MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 111
  • with 100% significance which makes the model satisfactory. We can increase the adequacy level by changing factors like fees load and expenses because it has a very low communality. Total variance explained by the model is 64% which means that 64% of the variance has been accounted by the factors. Through rotated component matrix we can classify all the variables into 10 factors. Some of the factors are as follows: (Refer Annexure)VARIABLES FACTORSPerformance of fund managerAUM Technical factorsNAVType of schemePersonal attention Psychological factorsPrior experienceAdvisor influenceFamily recommendation PromotionPromotional campaignEconomic & Market conditionFluctuation in equity market Market conditionAttitude towards risk There are other factors also which consists of other variables but they cannot be classified under abroad headings. We can see in the rotated component matrix in factor analysis table that above factors have been recognised as sub-factors and generalized in 5 broad categories. All this selection has been made by the modal on the basis of factor loadings which we can see in one of the tables of factor analysis. 5 Broad factors have been described in the following manner:- MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 112
  •  Financial Factors -This factor has 3 sub-factors namely performance of the fund manager, AUM, NAV. Thus this factor tells us more of the technical side of any given fund under consideration. Investor who ranks this factor or these sub-factors as the most important is definitely looking for very good returns & going to invest after much research as he will definitely looking for a fund having a good performance and decent returns opportunity.  Customer Oriented Factors – Type of scheme, personal attention and prior experience are the sub-factors that make this broader category together. In this category an investor is looking for the different schemes under any particular fund. Investor is also looking for personal attention being given to his portfolio or investments, he wants personal attention in the sense that new investment opportunities should be informed to him or proper entry & exit points should be recommended to him and the likes.  Marketing Factors – Investors who are going to rate this broad category as the most important for them are more inclined to the factors like advisor influence, family recommendation and promotional campaign. These kinds of investors are not much experienced as far as these investments are concerned.  Economic Factors – This factor includes factors like market condition, fluctuations in the market and attitude towards risk. Investors who are more concerned about these factors are risk averse investors. These investors wait for the right moment to enter or to start investing in funds. For these people risk is at the top most priority and if returns are not that much then also its fine with these investors.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 113
  •  Security Factors – It includes tax benefits, prospectus and security as far as their capital investment is concerned.DISCRIMINANT ANALYSIS:Through Discriminant analysis I have tried to highlight variables which effect thedecision of a people investing for less than a year and people who are investing for morethan a year. The term 1 consists of the people who are investing for less than a yearwhereas term 2 consists of the people who are investing for 1 to 5 years. I have foundthat Eigen value is less than 1 and Wilks’ Lambda is more than 0.5 as well as thesignificance level is quite high which shows that the model is not applicable. Throughgroup statistics in both the terms standard deviation is quite high and mean is quite lowas seen in Appendix. Therefore, there is no difference in the factors affecting the buyingbehavior between term 1 and term 2 people.DEMOGRAPHIC FACTORS: • SEX PROFILE: • AGE PROFILE:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 114
  • From above charts it can be easily be inferred that people aged between 31-40 preferredmutual funds most because of many factors, but mainly due to stability in their earningsand career, responsibility towards family etc. Also, we found that only 1 respondent isfemale in pilot study, so we will see to what number it will go because this number willgive us a rough idea about mutual fund awareness among women in particular andfinancial awareness in general. ACADEMIC QUALIFICATION:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 115
  • • MARITAL STATUS: OCCUPTION PROFILE:From above charts it can be easily inferred that:  Majority of respondents are graduates, therefore it remains to be seen that to what extent post graduates and professional have interest in mutual funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 116
  •  Majority of respondents are married (80%), therefore it remains to be seen that how many young and unmarried investors have preference towards mutual funds.  Majority of respondents have their occupation as a professional be it Relationship Mangers, Insurance agents, Independent Financial Advisors (IFAs), MBAs etc. mainly due to their high level of awareness about financial products. ANNUAL INCOME RANGE:From above chart it can be easily inferred that majority of respondents are from2,00,000-5,00,000 range, therefore its remain to be seen that how many are from lessthan two lakh category because here lies the opportunity for AMCs to generate hugevolumes by offering innovative funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 117
  • FINANCIAL BEHAVIOUR OF THE RESPONDENTS:INVESTMENT OBJECTIVES: Among given options including “others” categorymajority of respondents prefer good return as their primary objective of investment.CHANNELS USED BY RESPONDENTS FOR INVESTING: From the study it caneasily be inferred that majority of respondents(70%) now invest directly in mutual fundsespecially after SEBI guidelines came recently that says there will not be any ENTRYLOAD for investors investing in mutual fund schemes directly.INVESTMENT HORIZON: From study it can be concluded that majority ofrespondents invest in mutual funds from “More than three year” perspective (53%),that’s means once a investor comes to your service he will be there for at least threeyears, therefore it is very essential today that AMCs and especially SBI should focusedMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 118
  • on innovating new ways to serve the customers like giving SMS time totime, giving value added services like free insurance, debit cards etc.INVESTMENT AMOUNT: From pilot study it can be concluded that majority ofrespondents (46%) have investments in mutual funds in a range of “More than 1,00,000” category which implies that over a period of time if an investor see that hiscapital is growing than the probability of his subsequent investment becomes verystrong.SCHEME PREFERENCES:ON THE BASIS OF ASSET CLASS:When it comes to scheme preferences majority of retail investors prefer EquitySchemes (93.33%), followed by Balanced Schemes (6.66%) with no single retailinvestor preferring debt or fixed income instruments like Fixed Maturity Plans (FMPs).It shows that there is a huge potential for debt instruments in the market which isunearthed by retail investors due to its complexity, low awareness etc.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 119
  • PREFERABLE ROUTE TO INVESTING IN MUTUAL FUNDS:As above chart clearly explains that majority of respondents (57%) take self decisiononce they start investing in mutual funds. Only 10 % of respondents take help ofBrokers/Advisors when it comes to final decision of investing. Therefore, it shows thatAMCs in general and SBI in particular have to be more informative so that they canMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 120
  • provide best material, service and information to facilitate subsequentinvestment of retail investors.SCHEME PREFERENCES:ON THE BASIS OF STRUCTURE:When it come to scheme preference on the basis of its structure, majority of retailinvestors prefer “Open Ended Scheme “ primarily due to flexibility of redemptions,investments, good return and liquidity. None of the investors prefer “Interval Scheme”,in fact some of the retail investors were confused about the very name of “IntervalSchemes.”SAVING HABITS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 121
  • When it comes to Saving Habits of retail investors it comes out thatmajority of respondents saves between 15%-20% p.a. basis followed by “above 25%”category (20%), therefore at this stage it is very difficult to say anything about savingpreferences about retail investors. Others categories like 10-15 and 20-25 are equallypreferred by respondents but it was a positive clue that only 7% of respondents savebelow 5%.SBI AND OTHERS:Most Popular Fund from SBI: Up till this stage the winner is “MAGNUM TAXGAIN” which is preferred by majority of respondents (60%), due to its three in onebenefits which are as follows:  Tax Benefit  Good Return  Capital AppreciationMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 122
  • SATISFATION LEVEL WITH SBI:Form above chart it can be inferred that up to this stage majority of respondents (47%)are considerably satisfied when they were asked about overall experience with SBIMutual Funds including funds, returns, services etc., but it remains to be seen that whichcategory leads with the completion of survey because second best categories preferredby investors is “Reasonably Satisfied” which means that there is more to do on SBIbehalf for Customer Satisfaction.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 123
  • MOST POPULAR FUND HOUSE IN TERMS OFHIGHEST INVESTMENT:When asked about highest investment in an AMC majority of Investors (27%) gave thename of SBI which is followed by Reliance (23%), ICICI (20%), and rest in “others”which is lead by UTI. So there is a stiff competition in the market and it remains to beseen that which fund house take the leads with the completion of the project.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 124
  • 4.COMPARATIVE ANALYSISMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 125
  • INTRODUCTION:Return alone should not be considered as the basis of measurement of the performanceof a mutual fund scheme, it should also include the risk taken by the fund managerbecause different funds will have different levels of risk attached to them.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 126
  • Risk associated with a fund, in a general, can be defined as variability orfluctuations in the returns generated by it. The higher the fluctuations in the returns of afund during a given period, higher will be the risk associated with it. These fluctuationsin the returns generated by a fund are resultant of two guiding forces. First, generalmarket fluctuations, which affect all the securities, present in the market, called marketrisk or systematic risk and second, fluctuations due to specific securities present in theportfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum ofthese two and is measured in terms of standard deviation of returns of the fund.In order to determine the risk-adjusted returns of investment portfolios, several eminentauthors have worked since 1960s to develop composite performance indices to evaluatea portfolio by comparing alternative portfolios within a particular risk class. But beforethat we need to understand all the components that are used to explain the ratios likeBeta, Treynor, Sharpe, and Jensen etc. the components are as follows:NAV:Net Asset Value, or NAV, is the sum total of the market value of all the shares held inthe portfolio including cash, less the liabilities divided by the total number of unitsoutstanding. Thus, NAV of a mutual fund unit is nothing but the book value.Factors affecting NAV:  Variation in investment portfolio:Variation in the investment portfolio causes changes in the NAV of the fund, which inturn may affect the overall value of the fund. Since, same investment portfolios withdifferent NAV gives same returns in percentage terms, therefore, the securities that wehave in the portfolio play pivotal importance. Changing the portfolio or replacing anysecurity with the existing security may change the overall NAV of the fund, which inturn may change the value of the entire fund..MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 127
  •  Sale and repurchase of units:Sale and repurchase of any unit that we have in our portfolio changes the overall NAVof the fund. For example, we have a portfolio in which the security A is priced at Rs100. We sell this security and after one week when the price of the security becomes Rs80 we buy it, keeping all other investments intact, then the NAV of the portfolio willcome down, which in turn will result in better valuation for the fund. Therefore, sale andrepurchase also affects the NAV of the fund.  Valuations of assetsThe value that the underlying asset has, whose portfolio the fund has managed or ismanaging, if the value of that asset changes, it can change the overall NAV of the fund.  Cost associated with the FundThe cost associated with the fund also affects the NAV of the fund. All the chargesaccumulated during the selling of a security are known as Sales charges. Funds with lowexpense ratios are always preferred as they decrease the overall cost of the security.BETA:It is a ratio that measures the market risk of securities or a fund. If the beta ratio exceedsone, the fund is more sensitive than funds in general to the fluctuations of the stockmarket. The beta may also be negative, which means that the value of the fund will, onMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 128
  • average, move to the opposite direction than the general marketdevelopment.Beta measures the sensitivity of rates of return on a fund to general market movements.It also measures the volatility of the fund, as compared to that of the overall market. TheMarkets beta is set at 1.00; a beta higher than 1.00 is considered to be more volatile thanthe market, while a beta lower than 1.00 is considered to be less volatile.Beta measures the volatility of the fund’s value relative to the volatility of the fund’sbenchmark value. The Beta coefficient indicates the percentage change of the fund’svalue when the benchmark value changes by one percentage point.*Benchmark index that is taken here is Sensex.STANDARD DEVIATION: It measures the tendency of data to be spread out. Accountants can make importantinferences from past data with this measure. The standard deviation, denoted with S andread as sigma, is defined as follows:SHARPE RATIO:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 129
  • Sharpe (1966) developed a composite index which is very similar to theTreynor measure which will be discussed on a later stage. The only difference being theuse of standard deviation instead of beta, to measure the portfolio risk, in other wordsexcept it uses the total risk of the portfolio rather than just the systematic risk. R −R   P f  Sharpe =   σPσ = The standard deviation of the portfolio. PR P= Return of the portfolio.R f = Risk free rate.While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of afund, a low and negative Sharpe Ratio is an indication of unfavorable performance. Ifthe Sharpe figure is positive, the risk taken has paid off, and if the figure is negative, thereturns are lower than the risk-free rate.TREYNOR RATIO:Treynor (1965) was the first researcher developing a composite measure of portfolioperformance. It measures portfolio risk with beta, and calculates portfolio’s market riskpremium relative to its beta. This ratio rewards volatility because it shows risk adjustedreturns per unit of market risk for that particular scheme. When the markets are morevolatile, schemes with high Treynor ratio are highly affected and vice versa. A schemewith high Treynor ratio such as Equity scheme will enjoy a premium when the marketsare bullish and will be affected negatively when the markets are bearish. On the otherhand, scheme with low Treynor ratio such as Debt Fund will not be affected greatly,irrespective of the bullish or bearish run in the markets. R −R   P f  Treynor =   βPMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 130
  • R = Portfolio’s actual return during a specified time period. PR f = Risk-free rate of return during the same period.β = Beta of the portfolio. PAll risk-averse investors would like to maximize this value. While a high and positiveTreynor Index shows a superior risk-adjusted performance of a fund, a low and negativeTreynor Index is an indication of unfavorable performance.The trouble with both Sharpe and Treynor ratios for evaluating "risk-adjusted" returns isthat they equate risk with short-term volatility. Therefore these measures may not beapplicable in evaluating the relative merits of long-term investments.INTER FIRM COMPARISON:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 131
  • The main objective of doing Inter Firm Analysis is to judge where SBIEQUITY FUNDS stands in comparison to other Asset Management Companies(AMCs) as per different criterion which are explained as follows.I have taken the help of recently done OUTLOOK MONEY SURVEY, to select thecategories and top performing funds in those categories.The following are those five categories:  EQUITY DIVERSIFIED FUNDS  EQUITY LINKED SAVING SCHEME  EQUITY LARGE CAP  EQUITY MID AND SMALL CAP  EQUITY THEMATICThe comparative analysis of categories mentioned above is shown as follows as on 29-05-09:The following three parameters are considered for comparative analysis: • Funds’ Returns • Risk Profile • Portfolio AnalysisLIMITATIONS:  Comparison of funds is done on the basis of various factors but due to time constrain and non-availability of data, I have done comparison on the basis of three factors namely return, risk and portfolio of the fund.  Also it is not possible to compare all the funds in market under each category, that’s why I have selected top 5 funds of each category mentioned above and compared them.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 132
  • METHODOLOGY  For the first part of analysis i.e. fund returns, I have taken five top funds of same category of different fund houses and compared their returns for 6 months, 1year, 3 years and 5 years.  For the second part of anlysis i.e. risk profile, I have compared these five funds with respect to their standard deviation, sharpe ratio, beta, alpha and r- squared.  For the third part of anlysis i.e. portfolio analysis, I have compared these five funds with respect to their P/E ratio, fund size(in Rs. cr.), portfolio turnover(in %), top 5 holdings.  The comparison of the funds is done using the bar charts and thus arriving at a conclusion after analyzing those charts.1)EQUITY DIVERSIFIED FUNDS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 133
  • • Meaning: These are the funds in the market which have investment across the sectors, asset classes and financial instruments to provide optimal benefit of diversification of portfolio to investors. The following are the top five funds in the market in this category as per the recently held survey: a) SBI MAGNUM CONTRA b) HSBC EQUITY c) FRANKLIN INDIA PRIMA PLUS d) SBI MAGNUM EQUITY e) RELIANCE GROWTH ANALYSIS: FUNDS RETURNS: As per this criterion funds are compared from past six month duration to five years time. Latest returns are shown in the analysis. Returns of less than one year are on absolute basis and for more than one year are on compounded basis.Fund Return(in SBI Magnum HSBC Equity Franklin India SBI Magnum Reliance‘000 cr.) Contra Prima Plus Equity Growth MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 134
  • 6 Months 53.64 34.56 43.36 51.79 46.421Year 13.55 -0.42 13.80 10.18 2.373Year 16.29 14.29 17.36 14.63 17.155Year 29.48 19.65 11.46 22.95 26.77 AS ON 29-05-09 Source: Value Research Online MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 135
  • FINDINGS:• Since two funds from SBI brand are in top five funds, that’s shows how well the portfolios are managed by the concerned Fund Managers.• Magnum Contra has performed very well in last six months which shows the funds’ ability to withstand ups and downs in the market which is the case since December 2008.It has increased by only (53.64)% when compared to HSBC Equity which has fallen by (34.56)%.• Hit by global recession, from one year perspective also both funds from SBI are showing stable returns.• Last, but not the least from three and five years perspective, the horizon which is considered to be very important from investors point of view, both funds from SBI, especially Magnum Contra outperformed in the category. It is giving highest return of 16.29% and 29.48% return in both time periods.RISK PROFILE: SBI Magnum HSBC Equity Franklin SBI Magnum Reliance Growth Contra India Prima Equity Standard 32.10 28.84 Plus 29.66 33.41 33.35 Deviation Sharpe -0.03 0.03 0.03 0.00 -0.01 RatioMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 136
  • Beta 0.97 0.87 0.89 1.00 0.97 Alpha -0.31 1.50 1.28 0.67 0.35 R- 0.95 0.95 0.94 0.95 0.88 SquaredAS ON 29-05-09 Source: Value ResearchOnlineFINDINGS: • Since Standard Deviation is the measure which shows variability in the returns from the mean return, therefore it is considered to be the direct measure of risk. As Both SBI funds have higher Standard Deviation, it shows that these funds are more aggressive in nature than other funds.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 137
  • • Sharpe ratio, which means returns per unit of risk that a fund is able to generate. Therefore, higher the ratio the better it is. Accordingly, Magnum Contra is not a winner as per this criterion. • Beta, which shows the co-movement of funds return with Market rate of returns, is again measure of volatility or risk. Since Magnum Equity is having highest Beta which is closed to one and also Magnum contra which is second highest shows that they are tend to be aggressive or volatile in nature. • Alpha, which measure the excess return over and above the market return is a measure of risk. A high positive alpha is good sign for fund. e.g. if a fund has alpha of positive 10 it means fund is giving a return of more than 10 percent when compared to its benchmark or Market. Accordingly, HSBC Equity is winner in this category which is generating a highest positive alpha in the category which is 1.50%. • R-Squared, which explains the change in return caused by market volatility is a good measure of risk. But a high r-square means that much of change is caused by market sentiments or fundamentals. Therefore, it is suggested that if a fund has very high r-square value it means similar returns can be achieved by investing in the stock markets. Therefore, a moderate r-square value ranging between 65-85% is considered good from portfolio management point of view. Since, Magnum Contra is having one of the highest r-squared value(.9) alongwith HSBC Equity it is suggested that some changes has to be made in the portfolio of fund to take benefit of diversification of portfolio. On the contrary, Reliance Growth is having a r-squared value of .88 which means that it is taking the benefit of its portfolio in most optimum way.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 138
  • PORTFOLIO ANALYSIS: SBI Magnum HSBC Equity Franklin India SBI Magnum Reliance Contra Prima Plus Equity GrowthP/E ratio 14.73 18.93 18.62 21.71 14.34Fund Size(in 1958.5 1180. 1153.2 241.91 3597.9Rs. cr.) 0 7 0 2PortfolioTurno 63.00 56.00 57.85 48.00 97.00ver(in %)Top 5 21.52% 26.97 33.46 31.52 17.49%Holdings % % % AS ON 29-05-09 Source: Value Research Online MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 139
  • FINDINGS: • P/E RATIO is a measure of investors’ confidence in the fund/stock. High P/E ratio means that investors are paying higher prices for stock when compared to its earnings. Generally, P/E ratio is high for young/growth funds/stock. Since Magnum Equity is having a highest P/E ratio in the category, it shows that investors have a lot of confidence in funds. On the contrary, Magnum Contra is slowly losing its contrarian approach which reflects in its lowest P/E ratio in the category.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 140
  • • As usual funds from SBI brands have largest Assets under Management (in cr.) this shows the Brand SBI has no problem when it comes to raising funds. Like Magnum Contra has second highest AUM in the category only preceded by Reliance Growth. • Concentration Level: As shown in above table, Magnum Equity is having 2 nd highest holdings in top five stock, which means the fund is concentrated towards major stocks in the portfolio. While Magnum Contra is quite diversified fund as it is having second lowest concentration level only next to Reliance Growth. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. However, high turnover also implies that high transaction cost are charged to fund. Since Sbi Magnum Equity of the funds from SBI have very low turnover, it means that funds were not required to be changed in recent period which ultimately results in greater efficiency. On the other hand Reliance Growth is having highest Portfolio Turnover which means Fund Manager is churning the portfolio very quickly which in turn increasing the transaction cost charged to the fund. NAV DETAILS OF FUNDS AS ON 29TH MAY,2009 FUND NAVMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 141
  • SBI Magnum Contra 45.00 HSBC Equity 80.72 Franklin India Prima 43.36 Plus SBI Magnum Equity 31.39 Reliance Growth 319.21 AS ON 29-05-09 Source: www.nseindia.comCONCLUSION:After considering all three parameters mentioned above it can be concluded thatMAGNUM CONTRA is the best fund in the category because unlike a typicalcontrarian fund that focus on out of flavor stocks, this fund considers the underlyingMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 142
  • company’s valuations and compares that with what it believes thecompany’s true valuations should be and then decide whether to invest in it or not.According to its Fund Manager Pankaj Gupta “if the market expects a stock to grow by20%, but we it to grow by 30%, the scrip is contrarian for us.”Also, Fund mainly focused on high-growth stocks like JP Associates, Sintex andWelspun Gujarat Stahl Rohern throughout 2007.Infact, Fund kept a high exposure to thecapital goods sector, one of the preferred in 2007.Fund also played on some contrarianbets like it invested in TATA STEEL after it acquired the Anglo-Dutch Steel MajorCORUS despite market shunning it. It increased its exposure to interest-rate sensitivesectors such as Auto and Banking, a move that eventually benefited the fund in 2007.2)EQUITY LINKED SAVING SCHEME :(ELSS)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 143
  • These are the open ended saving schemes which generally have lock-in-period of three years which means that once you have invested certain amount in yourfund, you can’t withdraw any amount from your account. These scheme are mostpopular among retail investors(also see in Appendices) due to its three-in-one featurewhich means these schemes are able to satisfy three different investment objectivessimultaneously which are mentioned as follows:  Tax Benefit  Good Return  Capital AppreciationThe following are the top five performing funds in ELSS category: a) SBI MAGNUM TAX GAIN 93 b) PRINCIPAL TAX SAVINGS c) BIRLA SUN LIFE TAX RELIEF 96 d) SUNDARAM BNP PARIBAS TAX SAVER e) KOTAK TAX SAVERANALYSIS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 144
  • FUNDS’ RETURN: As per this criterion funds are compared from past six month duration to five years time. Latest returns are shown in the analysis. Returns of less than one year are on absolute basis and for more than one year are on compounded basis:Fund Returns(in SBI Magnum Principal Tax Birla Sunlife Sundaram BNP Kotak Tax ‘000 cr.) Tax Gain Savings Tax Relief 96 Paribas Tax Saver 6 48.39 30.32 55.49 Saver 41.78 43.98 Months 1 Year 8.81 -16.51 9.34 16.48 2.73 3 Year 13.01 3.68 12.44 19.11 9.91 5 Year 40.02 21.29 22.25 35.99 NA AS ON 29-05-09 Source: Value Research Online MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 145
  • FINDINGS: • In six month category Magnum Tax gain has performed very well, it is preceeded only by Birla Sunlife Tax Relief when compared to other similar funds like Sundaram Tax Saver, Principal Tax saving and HDFC Long term advantage. • In one year category, fund has performed averagely well than other funds like Principal Tax saving, and Kotak Tax Saver. Fund has given only 8.81% return against the best of Sunadaram BNP Paribas Tax Saver’s 16.48%.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 146
  • • Last but not the least, it is good news that fund has outperformed all other funds in Three Year and Five Year Category giving returns of 13.01% and 40.02% respectively because this is the most preferred Investment Horizon among retail investors. In the 3 years category only Sundaram BNP Paribas Tax Saver shown higher returns of 19.11% than Magnum Taxgain’s.RISK PROFILE: SBI Magnum Principal Tax Birla Sun Sundaram Kotak Tax Taxgain 93 Savings Life Tax BNP Paribas SaverStandard 31.01 36.15 Relief 96 36.74 Tax Saver 31.42 33.Deviation 79Sharpe Ratio -0.11 -0.25 -0.13 -0.03 - 0.2Beta 0.93 1.02 1.07 0.91 7 0.9 7Alpha -2.78 -8.41 -4.00 -0.28 - 8.5R- Squired 0.94 0.84 0.90 0.87 9 0.8 6AS ON 29-05-09 Source: Value ResearchOnlineMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 147
  • FINDINGS: • Since Standard Deviation is the measure which shows variability in the returns from the mean return, therefore it is considered to be the direct and primary measure of risk. In case of Magnum Tax Gain, it has the lowest standard deviation in the category which means that the fund has not much risky portfolio. • Sharpe ratio, which means returns per unit of risk that a fund is able to generate. Therefore, higher the ratio the better it is. Accordingly, Magnum Tax Gain is among the best fund as it is having 2 nd highest ratio in the category. AllMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 148
  • funds in this category are showing negative ratio which indicates that funds are not able to justify well whatever it hac investments in risky assets. • Beta, which shows the co-movement of funds return with Market rate of returns, is again measure of volatility or risk. Magnum TAX Gain which is having one of the lowest beta in the category and also less than 1(.9) shows that the fund is actually very less sensitive to stock market movement. • Alpha, which measure the excess return over and above the market return is a measure of risk. A high positive alpha is good sign for fund. e.g. if a fund has alpha of positive 10 it means fund is giving a return of more than 10 percent when compared to its benchmark or Market. As per this criterion Sundaram BNP Tax Saver is leading the category having lowest negative alpha of -0.28%. Magnum Taxgain is at the 2nd position with negative alpha of -2.78%. • R-Squared, which explains the change in return caused by market volatility is a good measure of risk. But a high R-squared means that much of change is caused by market sentiments or fundamentals. Therefore, it is suggested that if a fund has very high r-square value it means similar returns can be achieved by investing in the stock markets. Therefore, a moderate r-square value ranging between 65-85% is considered good from portfolio management point of view. All funds except for Magnum Taxgain(0.94) and BSL Tax Relief 96(0.90), as per this criterion are trailing compared to other funds in this category.PORTFOLIO ANALYSIS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 149
  • SBI Magnum Principal Tax Birla Sunlife Taxgain 93 Savings Tax Relief 96 Sundaram Kotak TaxP/E Ratio 18.13 14.91 16.56 BNP Paribas 16.12 Saver 16.62Fund Size(in 3133.66(30- 175.63(30-04- 591.69(30-04- 703.54(30- 32.1(30-04-Rs. Cr.) 04-09) 09) 09) 04-09) 09)Portfolio 24.91 22.14 22.43 30.20 20.94Turnover(in%) 5Top 19.64% 24.48% 29.19% 23.21% 17.39%Holdings AS ON 29-05-09 Source: Value Research Online FINDINGS: From the above table it can be concluded that: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 150
  • • P/E RATIO is a measure of investors’ confidence in the fund/stock. High P/E ratio means that investors are paying higher prices for stock when compared to its earnings. Generally, P/E ratio is high for young/growth funds or stock. In this case Investors have faith in SBI Magnum Taxgain 93 as it is having highest P/E ratio(18.13). Though Kotak Tax Saver is also having a better figure of 16.62. • Again Magnum Tax gain has largest Assets under Management (AUM), as a result of strong distribution network, strong brand, and the message of faith that SBI name itself give to masses of investors. Therefore, SBI Mutual Funds in particular should build on strength of its Sponsor. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. However, high turnover also implies that high transaction cost are charged to fund. As it is clearly visible from the table that Magnum Tax Gain(24.91) from SBI has lower ratio compared to Sundaram BNP Paribas Tax Saver(30.20) in the category it can be concluded that portfolio was changed least number of time which again resulted in greater efficiency. • Concentration Level: As it is clearly visible from the table that Kotak Tax Saver is most diversified fund as it is having lowest holdings in Top five holdings while Tax gain from SBI has 2 nd lowest level of concentration level which means it is better diversified than other two funds in the same category. NAV DETAILS OF FUNDS AS ON 29TH MAY,2009FUND NAVMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 151
  • SBI Magnum Tax Gain 93 46.09 Principal Tax Savings 57.03 Birla Sun Life Tax Relief 96 71.15 Sundaram BNP Paribas Tax saver 34.88 Kotak Tax Saver 13.79AS ON 29-05-09 Source: www.nseindia.comMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 152
  • CONCLUSION:After considering all the three parameter mentioned above, it can be concluded thatMAGNUM TAX GAIN tops the chart. Though shift towards Large-Cap stocks did nothelp in 2007 therefore Fund manager Jayesh Shroff has been forced to cut holdings insmall and medium companies from 86% in mid-2005 to around 25% now. Also, sinceELSS has more of Retail money Mr.Shroff decided to play less aggressive strategy.After all large cap stocks are less volatile and schemes investing them have lowdownside risk. Principal Tax Saving fund is the second best fund and also mostconsistent fund in the category.The fund also invested in under-researched companieslike Adhunik Metaliks, Madhukon Projects, Essen Rea Roll which helped in generatingmore returns. The fund has no sectoral bias and invested in stocks across marketcapitalization.3)EQUITY MID AND SMALL CAP:These are the equity funds which invest primarily in mid cap and small cap stocks, thestocks which have growth potentials and also have high risk when compared to largecap.OBJECTIVE: The main objective of such funds is to provide long term growth incapital along with liquidity, by investing predominantly in a well diversified basket ofequity stocks of companies whose market capitalization is less than Rs 2000 crore.The following are the top five performing funds in this category as on date: a) ICICI PRU EMERGING STAR b) MAGNUM GLOBAL 94MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 153
  • c) MAGNUM MULTIPIER PLUS 93 d) RELIANCE GROWTH e) SUNDARAM BNP PARIBAS SELECT MIDCAP INST ANALYSIS: FUNDS’ RETURN:Fund ICICI PRU Magnum Magnum Reliance SundaramReturns(in’000cr. Emerging Global 94 Multiplier Plus Growth BNP Paribas) 3 Months STAR 68.40 85.26 93 55.77 64.43 Select Midcap NA 1 Year -29.66 -21.61 -5.55 -9.68 NA MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 154
  • 3 Year -3.97 -0.36 10.30 11.95 NA 5 Year 24.82 31.21 33.32 35.20 NAAS ON 29-05-09 Source: Value ResearchOnlineFINDINGS:• Since two funds from SBI brand are in top five funds, that’s shows how well theportfolios are managed by the concerned Fund Managers.• In Three month category, Magnum Global is the winner since it has fallen byminimum value, while both funds Reliance Growth and Multipier Plus 93 have fallen bymaximum value. It means these funds were not able to withstand Ups and Downs in theMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 155
  • Indian stock markets in past three months i.e. from March 2009 to May2009 compared to other wellperforming fund in the same period.• Hit by the mammoth of recession in one Year category Winner is MagnumMultiplier Plus 93 giving the highest return of -5.55%, while funds like ICICI PruEmerging STAR are giving lowest returns in the category giving only -29.66% return inpast one year.• In three year category which is one of the preferred choice of a retail investorMagnum Multiplier Plus 93 is 2 nd highest giving the return of 10.30% while RelianceGrowth is at 1st position giving 11.95% return.• In five year category, again Reliance Growth is the winner giving a handsome returnof 35.20%, while Multiplier plus is giving a return of 33.32% at Second Position andMagnum Global is giving a return of 31.21% which is not a bad return.RISK ANALYSIS: ICICI PRU Magnum Magnum Reliance Sundaram Emerging Global 94 Multiplier Growth BNP Standard STAR 38.24 37.22 Plus 9330.90 33.35 Paribas NA DeviationMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 156
  • Sharpe -0.40 -0.34 -0.08 - Ratio 0.01 NA Beta 1.07 1.05 0.90 0.97 NA Alpha - - -1.80 0.35 NA 14.78 12.07 R- 0.82 0.83 0.90 0.88 NA SquiredAS ON 29-05-09 Source: Value ResearchOnline FINDINGS:• The primary measure of risk i.e. Standard Deviation is highest for ICICI Pru Emerging Star which means it is the most risky fund in the category. Second is Magnum Global having Standard Deviation of 37.22%.Fund having lowestMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 157
  • Standard Deviation is also from SBI, Multiplier Plus 93 is having 30.90% as Standard Deviation.• All funds in this category are showing negative ratio which indicates that funds are not able to justify well whatever it hac investments in risky assets. Now, 2 nd highest return per unit of risk in the category is from SBI, Multiplier Plus is having a Sharpe Ratio of -0.08 which justify its risk. ICICI Pru Emerging STAR is having lowest ratio(-0.40) again indicating its aggressive nature.• ICICI Pru Emerging Star is having a highest Beta of 1.07 in the category, which means it is the most highly sensitive fund to the market in the category. Magnum Multiplier Plus is having lowest Beta of 0.90 which means that it is less sensitive to the market and hence less risky.• Reliance Growthis having a highest value of alpha in the category. It is giving 0.35 % excess return than its benchmark. Multiplier Plus from SBI has second best alpha which is giving -1.80% deficit return than its benchmark.• Last, but not the least all funds in this category have good R-Squared value, because all R-Square values are near about .7 or less than that which means all funds are taking the benefit of Professional Management, since a major part is being played by other facors.But three funds ICICI Pru Emerging Star(0.82),Magnum Global(0.83) and Reliance Growth(0.88) are having best R- Squared value in the category.PORTFOLIO ANALYSIS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 158
  • AS ON 29-05-09 Source: ICICI PRU Magnum Magnum Reliance Sundaram Emerging Global 94 Multiplier Plus Growth BNPP/E Ratio STAR 12.39 11.64 93 21.20 14.34 Paribas NATurnover(in 91.61 90.72 47.00 59.69 NA%)Fund 256.0 746.87( 687.15(3 3597.9 NAsize(in 0(30- 30-04- 0-04-09) 2Rs.cr)Top 5 04- 14.60 09) 18.96% 24.68% 17.49 NAHoldings % Value Research Online FINDINGS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 159
  • • P/E RATIO is a measure of investors’ confidence in the fund/stock. High P/E ratio means that investors are paying higher prices for stock when compared to its earnings. Generally, P/E ratio is high for young/growth funds or stock. In this case both funds from SBI are having high P/E Ration in the category.Infact,Magnum Multiplier Plus 93 is having highest P/E ratio of 21.20 in the category. Magnum Global 94 is having a lowest P/E Ratio of 11.64 which shows investors are comparatively lacking confidence in the fund. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. However, high turnover also implies that high transaction cost are charged to fund. As it is clearly visible from the table that Magnum Multiplier Plus is having lowest turnover ratio of 47% compared to highest of 91.61% in case of ICICI Pru Emerging Star and 90.72% in case of Magnum Global 94, it shows that the fund is well managed and is having a lowest transaction costs. Also Reliance Growth is having moderate value of 59.69% implying less transaction cost being charged to the fund. • Fund Size, as visible from table itself that, Reliance with its Brand Name and effective Marketing Strategy has no problem when it comes to raising fund from public. Reliance Growth is having a largest Fund Size of Rs.3597.92 Crore in the category, followed by Magnum Global 94 (Rs.746.87 Cr)and SBIs Magnum Multiplier Plus (Rs.687.15 Cr) which shows popularity of these funds in the market. • Concentration Level: As visible from table, ICICI Pru Emerging STAR is having lowest percentage (14.60) of holding in its Top five Stocks i.e.it is the most diversified fund in the category. On the other hand, Magnum MultiplierMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 160
  • Plus 93 is having lowest Diversification as it is having highest holding in top five stocks (24.68) in the category. NAV DETAILS OF FUNDS AS ON 29TH MAY,2009FUND NAV ICICI PRU EMERGING STAR 21.42 MAGNUM GLOBAL 94 35.81 MAGNUM MULTIPIER PLUS 93 58.57 RELIANCE GROWTH 319.21 SUNDARAM BNP PARIBAS 100.52 SELECT MIDCAP INST AS ON 29-05-09 Source: www.nseindia.comMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 161
  • CONCLUSION:After considering all three parameters discussed above it can be concluded thatMAGNUM MULTIPLIER PLUS FUND is the best fund in the category followed byReliance Growth.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 162
  • 4)EQUITY LARGE CAP:These are the funds which have investments predominantly in large cap stock. These arethe stocks which has a solid track record and sound fundamentals. These are the lessrisky stocks and hence generally have low growth rates when compared to small andmid-cap stocks.In this category fund from SBI, Magnum Equity have been taken, since it has significantexposure to large cap stocks (92.16%). The following are the top performing funds in the category: A) BIRLA SUN LIFE FRONTLINE EQUITY B) SUNDARAM BNP PARIBAS S.M.I.L.E. REG C) KOTAK 30 D) MAGNUM EQUITY E) RELIANCE VISIONMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 163
  • ANALYSIS: FUNDS’ RETURN:Fund returns(in Birla Sunlife Sundaram Kotak 30 Magnum Reliance‘000cr.) Frontline BNP Paribas Equity Vision3 Months Equity 61.99 S.M.I.L.E. Reg 80.89 45.96 51.79 59.181 Year -0.65 -7.79 -12.42 10.18 -5.813 Year 17.69 9.63 9.53 14.63 10.215 Year 29.29 NA 27.37 22.95 28.83 AS ON 29-05-09 Source: Value Research Online MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 164
  • FINDINGS: • In past three months, Sundaram BNP Paribas S.M.I.L.E. Reg is the winner, since it has fallen to only (80.89%) compared to highest fall in Kotak 30(45.96). Also, Magnum Equity from SBI was not able to withstand ups and downs in the market witnessed in last three months since it is fallen to 51.79% which is second highest fall. • Hit by the mammoth of recession in one year category, Magnum Equity top the charts, giving the highest return of 10.81%, when compared to the lowest of -12.42% given by Kotak 30.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 165
  • • In three Year category Sundaram BNP Paribas Select Focus top the charts giving a x return of 17.69% followed closely by Magnum Equity giving a return of 14.63%. • In Five year category Birla Sun Life Frontline Equity top the charts giving a 4TH return of 29.29% while Magnum Equity stands at only position giving the return of 22.95%.RISK PROFILE:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 166
  • AS ON 29-05-09 Source: Birla Sunlife Sundaram Kotak 30 Magnum Reliance Frontline BNP Paribas Equity VisionStandard Equity 29.36 S.M.I.L.E. 38.07 29.98 33.41 30.79DeviationSharpe Ratio 0.14 -0.10 -0.05 0.00 -0.11Beta 0.89 1.12 0.90 1.00 0.91Alpha 4.60 -3.01 -0.99 0.67 -2.95R-Squired 0.96 0.91 0.95 0.95 0.92Value Research OnlineFINDINGS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 167
  • • As per the Standard Deviation, SUNDARAM BNP PARIBAS S.M.I.L.E. Reg is having the highest risk in the category compared to lowest risky Birla Sun Life Frontline Equity (29.36%). • The return per unit of risk is highest in case of Birla Sun Life Frontline Equity(0.41) which is also having lowest risk in the category while RELIANCE VISION is having one of the lowest Sharpe Ratio(-0.11) in the category indicating that fund is not able to generate enough return compared to the risk its taking while investing. • SUNDARAM BNP PARIBAS S.M.I.L.E. REG is having highest Beta (1.12) in the category signifying its aggressive nature. Since Beta is more than 1 it means Fund is highly sensitive to the market, therefore whenever Stock Market will fall or rise fund will fall or rise more than the market. Birla Sun Life Frontline Equity is having lowest Beta (.89) in the category again signifying that it is having lowest risky profile in the category. • As per Alpha measure of risk, Birla Sun Life Frontline Equity is again the best fund in the category, giving the highest excess returns than the market (4.60%).On the other hand RELIANCE VISION is not able to generate Alpha Returns and it is one of the lowest alpha generating fund in the category (- 2.95%). • All funds in the category are having higher R-Squared Value. Among the funds Birla Sun Life Frontline Equity is having highest value of .96 which tells us that All funds are significantly influenced by Market and thus not taking help of Professional Management at its optimum.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 168
  • PORTFOLIO ANALYSIS: Birla Sunlife Sundaram Magnum Reliance Kotak 30 Frontline BNP Paribas Equity Vision Equity S.M.I.L.E. P/E Ratio 15.52 14.67 17.22 21.71 14.81 Portfolio 17.45 10.83 26.31 32.29 17.02Turnover(inFund%) Size(in 481.14(30- 130.26(30- 688.14(30- 241.91(30- 2589.02(30- Rs.cr.) 04-09) 04-09) 04-09) 04-09) 04-09) Top 5 28.46% 20.93% 32.11% 31.52% 26.21% HoldingsAS ON 29-05-09 Source: Value ResearchOnlineMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 169
  • FINDINGS: • As per P/E Ratio Magnum Equity is the winner in the category, it is having highest ratio of 21.71 i.e. Investors are really confident about the fund and they are paying much higher than the earnings. While Sundaram BNP S.M.I.L.E. Reg is having lowest P/E Ratio of 14.67 which means investors are not much confident about the fund. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. However, high turnover also implies that high transaction cost are charged to fund. In this category, SUNDARAM BNP PARIBAS S.M.I.L.E. Reg is having lowest Portfolio Turnover Ratio (10.83) suggesting that Fund Manager is managing the fund without much change in the portfolio and thus saving the Transaction cost. On the other hand, Magnum Equity is having the highest Portfolio Turnover Ratio of (32.29),thus incurring the highest transaction cost. • As per the Fund Size, Reliance Vision managing the largest fund (2589.02 Cr) in the category, indicating its Brand Name, Brand Penetration in the market. While Magnum Equity is having the 2nd minimum Fund Size indicating the not much popularity of the fund in the market. • Concentration Level: As per this criterion, Kotak 30 and Magnum Equity are having highest Top Five Holdings in the category (32.11%) and (31.52%) respectively, indicating that it is the least diversified fund in the category. While SUNDARAM BNP PARIBAS S.M.I.L.E. Reg is having lowest (20.93%) topMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 170
  • five holdings indicating that it is the most diversified fund in the category, thus taking the benefit of the Diversification. NAV DETAILS OF FUNDS AS ON 29TH MAY,2009 FUND NAV Birla Sun Life Frontline Equity 62.82 Sundaram BNP Paribas 22.49 S.M.I.L.E. Reg Kotak 30 76.93 Magnum Equity 31.39 Reliance Vision 198.42MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 171
  • AS ON 29-05-09 SOURCE: NSE WEBSITECONCLUSION:After considering all three parameters discussed above it can be concluded that BIRLASUN LIFE FRONTLINE EQUITY tops the category due to following reasons: • A.Balasubramanian who earlier used to head Fixed Income Team, now heads overall Investment team, he gave a lot of freedom to its analyst and research team to present new stock ideas. He also sharpened the internal processes, stressing on small and medium companies that are usually under-researched. • Fund Manager Mahesh Patil’s stock and sector selection ability was also the key to fund’s success.It did well to identify potential winner in public sector banks, as also companies like Crompton Greaves, Hindustan Dorr-Oliver and Thermax in 2007.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 172
  • • Mahesh also played fairly aggressive strategy by picking up stocks whose Price levels were attractive. • Fund also didn’t take high exposure to any single stock, therefore Downside risk was also lowest of this fund in the category.5)EQUITY THEMATIC FUNDS:These are the funds which invest in particular sector or particular group of companies totake advantage of that group. These funds are generally higher in risk profile and thusprovide high return also.The following are the top performing funds which have been taken for comparison withSBIs thematic fund in the category: A) BIRLA SUN LIFE BASIC INDUSTRIES B) TATA INFRASTRUCTURE C) JM BASIC D) MAGNUM EMERGING BUSINESS FUNDMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 173
  • E) UTI INFRASTRUCTURE ANALYSIS: FUNDS’ RETURNS:Fund returns(in Birla Sunlife Tata JM Basic Magnum UTI‘000 cr.) Basic Infrastructure Emerging Infrastructure3 Months Industries 71.77 66.96 123.1 Businesses 96.38 52.80 51 Year -8.76 -13.07 -35.62 -24.67 -9.123 Year 8.42 12.23 2.76 -2.21 10.89 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 174
  • 5 Year 24.63 NA NA NA 33.64 AS ON 29-05-09 Source: Value Research Online FINDINGS: • In three Months Category JM BASIC is the winner, giving a solid return of 123.15% followed by Magnum Emerging Business Fund giving a return of 96.38%. • In one year category, Birla Sunlife Basic Industries is the winner showing a fall of-8.76% followed by UTI Infrastructure(-9.12).The 2nd lowest return was given by SBIs Magnum Emerging Business Fund (-24.67%). MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 175
  • • In three year category, TATA Infrastructure is the winner giving a return of 12.23% followed by UTI Infrastructure(10.89%). Again the lowest return is given by Magnum Business Fund (-2.21%). • In Five Year category data is not available since all the above listed funds are new and have a track record of only three years except UTI Infrastructure giving a return of 33.64% which is a quite good return. RISK PROFILE: Birla Sunlife Tata J M Basic Magnum UTI Basic Infrastructure Emerging InfrastructureStandard Industries 34.57 35.21 47.00 Businesses 0.82 33.88DeviationSharpe Ratio -0.17 -0.02 -0.22 -13.41 -0.05 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 176
  • Beta 1.03 1.05 1.36 1.16 1.00Alpha -5.10 -0.11 -9.58 -0.34 -1.12R-Squired 0.93 0.92 0.88 41.45 0.90 AS ON 29-05-09 Source: Value Research Online FINDINGS: • As per Standard Deviation (S.D), which is considered to be primary measure of risk, SBIs Magnum Emerging Fund is the winner in the category having a lowest Standard Deviation of 0.82.On the other hand JM Basic is the looser having the highest S.D Of 47.00. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 177
  • • As per Sharpe Ratio, the return per unit of risk is negative for all the funds in this category. Its lowest in the case of Magnum Emerging Business Fund(-13.41) which means that funds is a looser. • As per Beta measure of risk, JM Basic is the most sensitive to the market, sine it is having highest Beta in the category of 1.36. All the funds in this category have Beta greater or equal to 1 which show that they are highly sensitive to market sentiments. • All the funds in this category have negative alpha 1 which show that they are giving negative returns. As per Alpha Measure of risk, Tata Infrastructure and Magnum Emerging Business Fund are showing smallest negative figures of -0.11 and -0.34 in ths category which suggests that they have given minimum loss to the investors compared to other funds. On the other fund, JM Basic was looser generating a highest negative alpha of (-9.58%). • As per R-Squared Value, JM Basic is having the best value as per MORNING STAR, because it is having a moderate value of .88 i.e. it is taking the benefit of diversification.PORTFOLIO ANALYSIS: Birla Tata JM Basic Magnum UTI Sunlife Infrastructure Emerging InfrastructureP/E Ratio Basic 12.72 17.62 11.53 Businesses 23.90 .01MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 178
  • Portfolio 35.23 46.91 8.80 6.13Turnover(in%) 51.81Fund Size(in 79.47(30- 1598.09(30- 391.54(30- 98.65(30-04- 1294.02(30-Rs.cr.) 04-09) 04-09) 04-09) 09) 04-09)Top 5 Holdings 24.36% 27.69% 30.24% 27.86% 27.69%AS ON 29-05-09 Source: Value ResearchOnline FINDINGS:MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 179
  • As per P/E ratio, SBIs Magnum Emerging Business Fund is the winner in the category, since it is having highest P/E Ratio of 23.90 in the category which means that Investors are paying almost 24 times of fund’s earnings and have a lot of confidence in the fund. On the other hand Birla Sun Life Basic Industries is having the lowest P/E Ratio in the category implying low investors’ confidence. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. However, high turnover also implies that high transaction cost are charged to fund. In the above category, JM Basic and SBI is the winner since both funds are having lowest Portfolio Turnover ratio which are 8.80 and 6.13 respectively. However, UTI Infrastructure is having a highest ratio of 51.81 implying that Fund manager is churning the Portfolio very quickly. • As per Fund Size, Tata Infrastructure is the winner in the category having largest Fund Size of 1598.09 crores and this was possible only due to its sound track record since inception because the fund has not have Strong Brand name when compared to other fund house like Reliance, Birla, SBI etc. UTI Infrastructure is also having a large corpus of 1294.02 Crores building on its Brand and performance also. • Concentration Level: As per this criterion, Birla Sun Life Basic Industries is the most diversified fund in the category because it is having a lowest holding in top five stock in terms of percentages( 24.36). On the other hand JM Basic and Magnum Emerging Business Fund are the least diversified fund in the category having 30.24% and 27.86% holding in top 5 Stock respectively.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 180
  • NAV DETAILS OF FUNDS AS ON 29TH MAY,2009 FUND NAV Birla Sun Life Basic Industries 75.89 TATA Infrastructure 27.84 JM Basic 16.57 Magnum Emerging Business 24.98 Fund UTI Infrastructure 30.79 AS ON 29-05-09 Source:www.nseindia.comMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 181
  • CONCLUSION:After considering all three parameters discussed above it can be concluded thatInfrastructure was the dominant theme in 2008.Though SBI came up with itsinfrastructure a bit late in 2007 therefore Magnum Emerging Business fund from SBIhas been taken due to its available track record. However, among the funds mentionedabove TATA INFRASTRUCTURE tops the category due to following reasons: • The scheme’s focus on capital goods, construction, engineering and banking worked very well.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 182
  • • Out of all infrastructure funds this fund was the least volatile since it had the well diversified portfolio.COMPARISON OF MUTUAL FUNDS AGAINSTOTHER INVESTMENT AVENUES: PRODUCT SAFETY/CONVI LIQUIDITY RETURN VOLATILITY NENCEEquity Low High/low High-Mod. HighFI Bonds High Moderate Mod.-High ModerateMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 183
  • Debentures Moderate Low Mod.-Low ModerateCorp. FD Low Low Moderate LowBank Deposit High High Low-High LowPPF High Moderate Moderate LowLife Ins. High Low Low-Mod LowGold High Moderate Mod.-Low ModerateReal Estate Moderate Low High-Low HighMF High High High Moderate SOURCE:VALUERESEARCHONLINE.COMFINDINGS:From above table it can be interpreted that Mutual Funds give high return, are safe innature, gives high liquidity when compared to other investment avenues. Also, Mutualfunds are Moderate in volatility compared to some high volatile avenues like equity andreal estate. Therefore, features mentioned here make Mutual Funds an attractiveinvestment instrument for all investors.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 184
  • 5.EXPECTATIONS OF THE INDUSTRY FROMBUDGET 2009-10:The Budget 2008-09 was expected to be a populist budget presented by the FinanceMinister Mr. P. Chidambaram as it was the last budget by the UPA govt. before thegeneral election in 2009. The mutual fund industry had the following items in its wishlist before the announcement of the budget 2009-10:  Bring Equity Fund of Funds, International Equity Funds, and Gold ETFs under the definition of Equity Mutual Fund.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 185
  •  Minimum criterion for equity oriented mutual fund be bought down from 65% to 50%  Dividend Distribution Tax on Corporate for Non Equity and Non Liquid Mutual Funds should be reduced to 10% from 20% at present.  Dividend Distribution Tax on Money Market / Liquid Mutual Funds should be reduced to 10% from 25% at present.  Overseas Investment Limit for individuals and international funds both should be lifted completely.  Dedicated Infrastructure Funds guidelines should be issued so that the huge infrastructure funding requirements can be met.  Commodity ETFs should be introduced.  PSUs should be allowed to invest across all mutual funds irrespective of Public/Private Status.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 186
  •  Redefine ‘equity-oriented’ schemes to include funds that invest in securities of foreign listed companies and ADR/GDRs issued by Indian and Foreign companies.  Differential tax incentive (on the lines of equity long term savings) to lure investor’s savings into long-term debt products through mutual funds.  Tax incentives for individuals to save in dedicated infrastructure funds, where money will be locked for a period for investment in infrastructure projects. Maybe a separate exemption limit of Rs. 100,000 can be set-aside for individuals.  Level playing field for MFs vis-à-vis alternative competing instruments, which vie for intermediation into India’s equity and debt markets.RELEVANT HIGHLIGHTS OF THE BUDGET 2009-10The EconomyMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 187
  •  The Gross Domestic Product increased by 7.5 per cent, 9.4 per cent and 9.6 percent in first three years, of the UPA Government resulting in an unprecedented average growth rate of 8.8 per cent. The drivers of growth continue to be services and manufacturing which are estimated to grow at 10.7 per cent and 9.4 per cent respectively.  Saving rate and investment rate estimated to be 35.6 per cent and 36.3 per cent, respectively, by the end of 2007-08; between April- December 2007-2008. FDI amounted to US$ 12.7 billion and FII to US$ 18 billion.FINANCIAL SECTORFinancial InclusionTwo recommendations of the Committee on Financial Inclusion proposed to be acceptedviz. (i) to advise commercial banks, including RRBs, to add at least 250 rural householdaccounts every year at each of their rural and semi-urban branches; and (ii) to allowindividuals such as retired bank officers, ex-servicemen etc. to be appointed as businessfacilitator or business correspondent or credit counselor; banks to be encouraged toembrace concept of Total Financial Inclusion; Government to request all scheduledcommercial banks to follow the example set by some public sector banks and meet theentire credit requirements of SHG members, namely, income generation activities,social needs like housing, education, marriage etc., and debt swapping.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 188
  • Capital MarketsMeasures to expand the market for corporate bondsExchange-traded currency and interest rate futures to be launched and transparent creditderivatives market to be developed with appropriate safeguards; Tradability of domesticconvertible bonds to be enhanced through the mechanism of enabling investors toseparate the embedded equity option from the convertible bond, and trade it separately;Development of a market-based system for classifying financial instruments based ontheir complexity and implicit risks to be encouraged.Permanent Account Number (PAN)Requirement of PAN extended to all transactions in the financial market subject tosuitable threshold exemption limits.Service tax Four services brought under service tax net namely, asset management service provided under ULIP, services provided by stock/commodity exchanges and clearing houses; right to use goods, in cases where VAT is not payable; and customized software, to bring it on par with packaged software and other IT services.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 189
  •  Threshold limit of exemption for small service providers increased from Rs.8 lakhs per year to Rs.10 lakhs per year; about 65,000 small service providers go out of the tax net.Direct Taxes Threshold limit of exemption from personal income tax in the case of all assesses increased to Rs.150, 000. The slabs and rates of tax are : Up to Rs.150, 000 NIL Rs.150, 001 to Rs.300, 000 10 per cent Rs.300, 001 to Rs.500, 000 20 per cent Rs.500, 001 and above 30 per cent Every income tax assesses to get relief of minimum of Rs 4,000. In case of a woman employees, the threshold limit increased from Rs.145,000 to Rs.180,000; for a senior citizens, the threshold limit increased from Rs.195,000 to Rs.225,000. Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account added to the basket of saving instruments under Section 80C of the Income Tax Act. Additional deduction of Rs.15,000 allowed under Section 80D to an individual paying medical insurance premium for his/her parent or parents.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 190
  •  Corporate debt instruments issued in Demat form and listed on recognized stock exchanges exempted from TDS. Parent company allowed to set off the dividend received from its subsidiary company against dividend distributed by the parent company; provided that the dividend received has suffered DDT and the parent company is not a subsidiary of another company. Rate of tax on short term capital gains under Section 111A & Section 115AD increased to 15 per cent. STT paid to be treated like any other deductible expenditure against business income; Levy of STT, in the case of options to be only on premium, where the option is not exercised; liability to be on the seller; where the option is exercised, levy to be on the settlement price and the liability on the buyer; no change in the present rates.SWOT ANALYSIS OF SBI MUTUAL FUNDSTRENGTH • Being the 7th biggest AMC,SBI Mutual Fund has a cutting edge over other AMC’sMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 191
  • • The name SBI is also associated with one of the largest public sector bank in India,and hence people show more faith in SBI Mutual Fund. • SBI Mutual Fund is one of the oldest AMC’s in private sector and schemes which are matured enough pull new investors because of high returns. • Wide variety of funds,ranging from debt funds to equity and a mixture of both in various proportions,give ample amount of choice to customers. • SBI Mutual Fund offers clear and non overlapping positioning of different funds. • Winner of ICRA Mutual Fund Awards 2009(Magnum Taxgain Scheme). • Winner of Lipper Fund Awards 2009. • Winner of Outlook Money NDTV Profit Awards- 2008.WEAKNESS • Lack of promotional material ,dispensers ,banners. • Proper training not being provided to bank officials.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 192
  • OPPORTUNITIES • Untapped rural market offers huge potential. • More focus on PSU’s may enhance business. • Training provided to investors may lead to more investments.THREATS • Competitors like Reliance AMC,ICICI prudential are catching up fast on the market share. • Share market slump may see downfall in investments. • Ongoing recession may impose adverse effectsFUTURE SCENARIOMutual funds are the fastest growing segment of the financial services sector in India.Owing to the impact of global financial crisis the average AUM of the Indian MutualFund industry fell by 1.53% and stood at rs. 493,287 crores. The average AUM of SBIMutual Fund for the month of March 2009 was Rs. 26,383 crores. There is littleMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 193
  • awareness about mutual fund in India; people have accepted it as a one ofthe major investment avenue. Once people know about the benefits offered by it, mutualfunds will become one of the sought after investment avenues.In future, Out of ten public sector players five will sell out, close down or merge withstronger players in three to four years. In the private sector this trend has already startedwith two mergers and one takeover. But this does not mean there is no room for otherplayers. The market will witness a flurry of new players entering the arena. There willbe a large number of offers from various asset management companies in the time tocome. Some big names like Fidelity, JP Morgan, etc. have entered the Indian market.One important reason for it is that most major players already have presence here andhence these big names would hardly like to get left behind.The mutual fund industry is witnessing the introduction of derivatives in the country.This enables it to hedge its risk and this in turn would be reflected in its Net Asset Value(NAV).I personally visualize a minimum annual growth of between 30 and 35 per cent, sincewe are on a growth phase (a real take off, if I may venture to say) as penetration intosemi-urban and rural areas is steadily increasing since more and more households areopting for mutual funds. I feel that this industry has a very interesting past, an encouraging present and a very bright future.FINDINGS:1) Regarding Funds:-MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 194
  • While dealing with them I have observed that the performance of theschemes of SBIMF is quite good and the demand for those schemes is also good. I cameto know that SBI Magnum Tax gain 93 is the most popular fund among individualinvestors. According to them the 3yr and 5yr returns of the funds are very good. One ofthe reason for great demands of AMCs fund is the Brand Value of SBI, as it is thelargest bank of country. At the same time they we also observed that unlike other AMCs like Reliance, HDFCetc. SBIMF is not very aggressive in marketing of its funds also the funds of SBIMF arenot very innovative (as they don’t have any banking or financial sector fund)2) Regarding services:-Apart from fund performance observations are also made regarding the services ofSBIMF, after analyzing the feedback of distributors I found that the services of SBIMFis not as good as other AMCs and some of the field in which they are lacking a) Complaints related to not delivering the account statements and brokerage on time. b) Problems related to material, like unavailability of forms, fact sheets and other promotional matters, also there are some problems related to courier services. c) They have also complained that AMC do not provide any fringe benefits on good performance.CONCLUSIONMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 195
  • The future of primary market is growing at a very high pace. Taking thisthing into consideration, there are lots of opportunities for the SBI Munds ManagementPvt Ltd to tap the golden opportunities from the Indian market.SBI Funds Management Pvt Ltd has emerged a very strong player in the field ofdistribution of financial product within a short period of one year time in Northern Indiaand is giving stiff competition to all the players in the market including the banks. It isexpanding its area of business, if the progress of SBI MF goes in the same way, than Ican say that there is bright future for SBI MF in coming years. They have muchpotential to expand their distribution network in northern India.The company is currently following huge investment and growth strategies. Apart fromthe market growth rate the distribution industry doesn’t seem so attractive. Hence thefirm should be selective using growth strategies. This is not to undermine the brightfuture of SBI MF, just a check to be a cautious.There is little awareness about mutual fund in India; people have accepted it as a one ofthe major investment avenue. Mutual funds will become one of the sought afterinvestment avenues. As far as the other investment products marketed by SBI MF areconcerned, they have a ready market. The only thing, which it needs to focus on, is thatthey should have a strong network so that prompt services and availability of forms ismade available to the investor at a short notice, and if it keeps the traditional base formarketing in India, which is a price sensitive market, we can say that SBI MF has agreat future ahead.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 196
  • SUGGESTIONS &RECOMMENDATIONSA) THE GROUND RULES OF MUTUAL FUND INVESTINGThe following are the 10 commandments that were to be followed till eternity. Theworld of investments too has several ground rules meant for investors who are novicesin their own right and wish to enter the myriad world of investments. These come inhandy for there is every possibility of losing what one has if due care is not taken. 1. Assess yourself: Self-assessment of one’s needs; expectations and risk profile is of prime importance failing which; one will make more mistakes in putting money in right places than otherwise. Irrational expectations will only bring pain. 2. Try to understand where the money is going: One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds. 3. Dont rush in picking funds, think first: one first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risks associated with theMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 197
  • fund and align it with the quantum of risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. 4. Invest. Don’t speculate: A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money 5. Don’t put all the eggs in one basket: This old age adage is of utmost importance. No matter what the risk profile of a person is, it is always advisable to diversify the risks associated. So putting one’s money in different asset classes is generally the best option as it averages the risks in each category. 6. Be regular: Investing should be a habit and not an exercise undertaken at one’s wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 198
  • 7. Do your homework: It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem. 8. Find the right funds: Finding funds that do not charge much fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one should also use these funds for tax efficiency. 9. Keep track of your investments: Finding the right fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase, then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show some buoyancy. 10. Know when to sell your mutual funds: Knowing when to exit a fund too is of utmost importance. One should book profits immediately when enough has been earned i.e. the initial expectation from the fund has been met with. Other factors like non-performance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to exit.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 199
  • B) WHEN TO SELL YOUR MUTUAL FUNDWhile there are many investment consultants, some by profession, some self-professed,who suggest on when to invest in a particular avenue, there is a certain paucity of peoplewho talk of when to exit. Here are some situations when the investor should considerwithdrawing their investments from the funds. • Fund is not performing This reason for selling, although valid in certain conditions, is where most investors make a mistake. When calculating performance one shouldn’t look at too short a period and make a mistake by comparing apples to oranges. One should compare the returns posted by his fund with that of the peers across various horizons such as 1- year, 3-year and above. A short-term view can often lead to committing hara-kiri, as it doesn’t present the full picture. If it has underperformed the average of its peers in all cases, then it sure is one of the better reasons to exit from the fund. • A change in life stage Investments are done with a certain objective in mind and life stages are often a determining factor of what a person needs. A young man can afford to take more risks than a person nearing his retirement can. In such cases, it pays to withdraw money from the equity investments made earlier and put them in safer, moreMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 200
  • conservative debt funds that offer stable returns without compromising on risk. So a change in life stages would be one such reason to consider switching into a fund that matches with one’s needs. • A major change in any basic attribute of the fund When the fund changes any basic attribute as mentioned by it in its offer documents, the investors have a choice of getting out of it. Even SEBI has provided for an exit route being made available to the investors. Changes like a change in Asset Management Company or in investment style of fund or change of structure say from closed-end to open-end etc. are good enough reasons for an investor to consider switching or exiting from it as they are certainly likely to affect the fund in a major way. • Fund doesn’t comply with its objective One of the important parameters in the selection of the fund is alignment of the risk profiles of the investor and fund. The objective of the fund says a lot about how the fund plans to invest. If the objective is not being complied with, it is one of the exit points worth considering. • The Fund’s Expense Ratio Rises A small rise in an expense ratio is not a big deal, however a significant rise can result in substantial reduction of yields and so it would be better to exit the fund. In the case of bond funds or money market funds, it is highly unlikely that theMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 201
  • fund can increase its returns enough to justify an increase in the funds expenses. • The Fund Manager has changed a simple change of fund managers, in itself, is not enough reason to sell a fund on a short-term basis. If it is a passively managed fund (index fund), then one has little to no reason to worry. However, if it is an actively managed fund, then has to keep the eyes open on the new manager. • Enough has been earned However, nothing is as important as to rein the horses in time. The primary principle behind safety of investment is to take risks that can be tolerated. The principle also is specific on the expectations that the investor must have from any investment. Just as it is important to set realistic targets that one hopes to achieve from the investment, it is also important to exit when target as expected has been achieved irrespective of the fact that it might be generating better returns in a short-term. Waiting longer might not prove beneficial, as one need not be lucky all the time.The above list is certainly not exhaustive and individuals will have other better reasons to quit as well. It’s just that most don’t know when to apply thought and so these would come in handy.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 202
  • LIMITATIONS OF THE PROJECT As my project involves interaction with both prospective as well as existing clients, lack of any identity proof hinders the assignment as people often suspect the authenticity of the concerned person. Being a trainee, I was not given the authority to handle any transaction myself but under the guidance of some superior. The company restricts me to deal with its key clients. Since I have not undertaken the AMFI exam, which is a mandatory condition to work in the operations department, I was not able to understand some of the common terms of the mutual funds industry but later I learnt them.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 203
  • GLOSSARY1. General Terms:i. BondsA debt security issued by government or corporation, which generally pays a stated rateof interest and to returns the principal amount of the loan on the maturity date. Unlikestockholders, bondholders do not have ownership privileges.ii. Capital GainsThe gains made on sale of securities and certain other assets (including units of mutualfunds) are called capital gains. The gains can be long-term or short-term depending onthe period of holding of the asset and are charged to tax at different rates. Gains onmutual fund units held for a period of 12 months or more are long-term gains.iii. CompoundingInterest earned not only on the initially invested principal but also on accumulatedinterest during the period.iv. Credit ratingMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 204
  • A measure indicating the bond issuer’s credit worthiness, or his/her abilityto repay the loan. The bonds are rated by an independent rating agency such as CRISIL,ICRA, and CARE.v. EquityA type of security representing part ownership in a company/corporation. Commonstocks, preferred stock, and convertible stock are types of equity securities, but debtsecurities are not, as they do not represent ownership. These are generally listed on BSE,NSE & other stock exchanges.vi. Fixed income securitiesA debt security that pays a defined rate of return. These do not offer an investor muchpotential for growth. This usually refers to government, corporate or municipal bonds,which pay a fixed rate of interest until the bonds mature, or preferred stock, which paysa fixed dividend. A mutual fund investing in these types of securities may also bereferred to as a fixed income investment or security.vii. Floating Rate SecuritiesAn interest rate, which is periodically adjusted, usually based on a standard market rateoutside the control of the institution. These rates often have a specified floor and ceiling,which limit the floating rate. The rates are pre-decided at regular intervals like halfyearly, annually based on market conditions. The opposite of having a floating rate ishaving a fixed rate.viii. Inflation riskThe possibility that the value of assets or income will be eroded by inflation, affectingthe purchasing power of a currency. Often mentioned in relation to fixed income Fundsas they may minimize the possibility of losing the principal.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 205
  • ix. Interest rate riskThe risk that a security’s value will change due to an increase or decrease in interestrates. A bond’s price will always drop as interest rates rise and when interest rates fall, abond’s price will rise.x. Mode of holding:When an investor makes investment only under his name, the mode of holding is termedas ‘Single’. However, when the investor makes an application with one or more personsas the second or third applicants, the mode of holding can be ‘Joint’ or can also be‘Anyone or Survivor’. However, when the mode of holding is ‘Joint’, all the applicantshave to sign jointly or simultaneously for any transactions. But when the mode ofholding is ‘Anyone or Survivor’ the holder / applicants do not have to sign jointly butcan be signed by either of the holders/ applicants.xi. Money Market InstrumentsCommercial paper, treasury bills, GOI securities with an unexpired maturity up to oneyear, call money, certificates of deposit and any other instrument specified by theReserve Bank of India.xii. Market riskThe potential loss that is possible as a result of short-term volatility of the stock marketindicated by beta. Owning mutual funds shields an investor to some market risk that astockholder may be vulnerable to because of their diversification.xiii. NREMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 206
  • A Non-Resident External Rupee account that NRIs can open with any Indian bank. Theycan use this account for making investments in India on a repatriable basis.xiv. NRIA Non-Resident Indian who is an Indian citizen or a person of Indian origin but whoresides abroad. NRIs have to follow specific rules when investing in India.xv. NROAn Ordinary Non-Resident Rupee account which can be opened for funds coming infrom abroad or from local funds. The amount in the account is, however, non-repatriable.xvii. Yield to Maturity (YTM)The yield earned by a bond if it is held until its maturity date.2. Business specific:i. Account Number / Folio NumberAfter the investor makes an investment, he is allotted units at the ‘Applicable NAV’ &he is given a unique account / folio number for the investments made by him.ii. Account statementA document similar to a bank account statement that indicates the mutual fund unitsowned. A statement is issued each time the investor carries out a transaction.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 207
  • iii. Asset Management Company (AMC)The trustee delegates the task of floating schemes and managing the collected money toa company of professionals, usually experts who are known for smart stock picks. Thisis an asset management company (AMC). AMC charges a fee for the services it rendersto the MF trust. Thus the AMC acts as the investment manager of the trust under thebroad supervision and direction of the trustees. The AMC must have a net worth of atleast Rs10 crores at all times and it cannot act as a trustee of any other mutual fund.iv. Application FormForm prescribed for investors to make applications for subscribing to the units of a fund.v. Annual ReturnThe percentage of change in net asset value over a years time, assuming reinvestment ofdistribution such as dividend payment and bonuses.vi. Applicable NAVNAV at which a transaction is effected. A cut-off time is set by the fund house and allinvestments or redemption’s are processed at that particular NAV. This NAV is relevantif the application is received before that cut-off time on a day. A different NAV holds ifreceived thereafter.vii. Average MaturityAverage time to maturity of all fixed-period investments in the portfolio of a scheme.viii. Assets Under Management (AUM) / CorpusMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 208
  • The total amount of money invested by all the investors in a scheme as on a date.ix. Business DayBusiness day is defined as a day other than (I) Saturday & Sunday (ii) a day on whichBOTH the National Stock Exchange and the banks in Mumbai are closed (iii) a day onwhich the Sale & Redemption of Units is suspended.x. Balanced fundsA mutual fund scheme with an investment objective of both long-term growth andincome, through investment in stocks and bonds. Generally 60% is invested in stocksand 40% in bonds, in order to obtain the highest returns consistent with a low riskstrategy.xi. Contingent Deferred Sales Charge (CDSC)A type of exit sales load which is charged when units are redeemed within a specifictime period following their purchase. These charges reduce the longer the units are held.xii. Dividend ReinvestmentIn a dividend reinvestment plan, the dividend is reinvested in the scheme itself. Henceinstead of receiving dividend, the unit holders receive units.xiii. Debt securitiesMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 209
  • A general term for any security representing money loaned that must berepaid to the lender at a future date. Bonds, T-notes, T-bills and money marketinstruments are debt securities, but they vary in maturities.xiv. Entry loadThe load on purchases after the Initial (Public) Offer, now called NFO (New FundOffer)xv. Exit loadThe load on redemption other than the Contingent Deferred Sales Charge (CDSC)permitted under SEBI Regulations. A fee charged by some funds for redeeming orbuying back of units. The amount sometimes depends on how long the investment washeld, so the longer the time period, the smaller the charge.xvi. Equity SchemesA scheme that invests primarily in stocks while seeking to provide relatively high long-term growth of capital.xvii. Ex-Dividend DateThe date following the record date for a scheme. When a funds net asset value reducesby an amount equal to a dividend distribution.xviii. Growth fundsMutual funds with a primary investment objective of long-term growth of capital.Unlike income, which is somewhat regular and consistent in most cases, growth is muchless consistent. Growth investments, however, usually outpace the returns on incomeMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 210
  • investments over the long-term (five to ten years, or longer). It investsmainly in common stocks with significant growth potential.xix. Holiday NAVHoliday NAV is the NAV at the day immediately preceding the day which is both aBusiness Day as well as a working day for banks at the centre where the application isreceivedxx. Income fundsA mutual fund that primarily seeks current income rather than growth of capital. It willtend to invest in stocks and bonds that normally pay high dividends and interest.xxi. Initial Public Offer (IPO)A fixed time period during which the first sale of units of a scheme are made availableto the public. The term Initial Public Offer used by mutual funds has been replaced by anew term “New Fund Offer” effective June 2, 2005 by SEBI.xxii. Index FundsA type of mutual fund in which the portfolios are constructed to mirror a specific marketindex. Index funds are expected to provide a rate of return over time that willapproximate or match, but not exceed, that of the market, which they are mirroring.xxiii. Liquid Funds /Money Market FundsFunds investing only in short-term money market instruments including treasury bills,commercial paper and certificates of deposit. The objective is to provide liquidity andpreserve the capital.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 211
  • xxiv. Mutual fundA Mutual Fund is a common pool of money from numerous investors who wish to savemoney. Each fund’s investments are chosen and monitored by qualified professionalswho use this money to create a portfolio. That portfolio could consist of stocks, bonds,money market instruments or a combination of those. Mutual funds offer investors theadvantages of diversification, professional management, affordability, liquidity andconvenience.xxv. Minimum PurchaseThe smallest investment amount a scheme will accept to open a new unit holderaccount.xxvi. No Load FundA fund that sells its units to investors without a sales load / charge.xxvii. Management FeeThe amount a scheme pays to its asset management company for its services. Typically,a certain percentage of assets under management. A funds management fee is listed inits offer document.xxviii. Net Asset ValueMarket value of one share of a mutual fund on a given day; also known as the bid price.Unlike the public offering price, the NAV includes no sales charges. The NAV iscalculated each day by taking the closing market value of all securities owned by aMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 212
  • mutual fund, plus all other assets (e.g. cash), and deducting the fund’sliabilities. This sum is then divided by the fund’s total number of shares outstanding.xxix. Operating ExpensesThe day-to-day cost a mutual fund incurs in conducting business, such as formaintaining offices, staff, and equipment. These expenses are paid from the funds assetsbefore any earnings are distributed.xxx. Offer documentThe offer document or prospectus is a booklet, a legal document that providesinformation about a specific mutual fund such as the fund’s investment objectives, loadstructure, subscription and redemption policies. Its purpose is to also inform investors ofpotential risks involved before they decide to invest in a fund and provides otherinformation that could help an individual decide whether the investment is appropriatefor him. An abridged offer document of the scheme also accompanies the applicationform of every scheme.xxxi. Offering priceThe price at which mutual fund shares are offered for sale to the public. Also known asoffering price. The public offering price represents the net asset value plus anyapplicable initial sales charges.xxxii. PortfolioA pool of individual investments owned by an investor or mutual fund. Portfolios mayinclude a combination of stocks, bonds, and money market instruments. A list of thefund’s current portfolio will usually be contained in a mutual fund’s annual report.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 213
  • xxxiii. Rate of returnRate of return is calculated by subtracting the purchase value by the present value andthen dividing it by the purchase value. For equities, we often include dividends with thepresent value.xxxiv. Rupee Cost AveragingAn investment strategy based on investing equal amounts in a fund at regular intervals.Because more shares are bought when prices are low and fewer shares when prices arehigh, the average cost of your shares may be lower than the average price over theperiod you bought them. Rupee cost averaging cannot guarantee a profit or protectagainst loss in declining markets.xxxv. Record DateThe date by which mutual fund holders are registered as unit owners to receive anyfuture dividend or capital gains distribution.xxxvi. Sale priceThe price at which a fund offers to sell one unit of its scheme to investors. This NAV isgrossed up with the entry load applicable, if any.xxxvii. Sector FundA fund that invests primarily in securities of companies engaged in a specific industry.Sector funds entail more risk, but may offer greater potential returns than funds thatdiversify their portfolios.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 214
  • xxxviii. SwitchingThe movement of investment from one scheme to another; usually within the family ofschemes. An investor may switch schemes because of market conditions.xxxix. Systematic Investment Plan (SIP)Allows an investor to periodically invest in units by issuing post-dated cheques or bygiving auto debit instructions. It allows the investor to benefit from rupee costaveraging.xxxx. Systematic Withdrawal Plan (SWP)Permits the investor to receive regular payments of a fixed amount or capitalappreciation from his investment in a mutual fund scheme on a periodic basis. Retireesin need of a regular income often opt for this.xxxxi. Systematic Transfer Program (STP)A plan that allows the investor to give a mandate to the fund to periodically andsystematically transfer a certain amount from one scheme to another.xxxxii. Transfer AgentA firm employed by a mutual fund to maintain unit holder records, including purchases,sales, and account balances.xxxxiii. UnitMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 215
  • The interest of the investors in either of the Schemes, which consists ofeach Unit representing one undivided, share in the assets of the Schemes.REFERENCESWebsites referred:· www.mutualfundsindia.com· www.amfiindia.com· www.valueresearchonline.com· Websites of the AMC’s taken in cases where data was not available on the above twosites.· www.bseindia.com· www.nseindia.comMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 216
  • · www.google.com· www.crisil.com· www.moneycontrol.com· www.crisilratings.comREFRENCES OF THEORY:· Security Analysis and Portfolio Management : Donald E Fischer, Ronald J Jordan· Outlook Money· Mutual Funds Review· Money Life· How to rate management of mutual funds : Harvard Business review· Association of mutual funds in India (AMFI) Publications and quarterly reports· Securities and Exchange Board of India· Investopedia· Mutual Fund Performance : W. Sharpe· Market Timing, Selectivity, and Mutual Fund Performance: An Empirical Investigation· Fact sheets of different fund housesMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 217
  • ANNEXTURE QUESTIONNAIRE- 1 (FOR INDIVIDUAL INVESTORS)  KEEP INVESTING AND KEEP SMILINGQ.1 Why do you invest in mutual funds? (Tick the Option)a)Safety b) Good Return c) Tax Benefit d) Capital Appreciation e) Liquidity f)Others(Please Specify………………………………………)Q.2Which fund from SBI have largest share in your “PORTFOLIO”.MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 218
  • Q.3Through which channels do you invest in Mutual fund? (Tick theoption) a) Directly b) Through BrokersQ.4 How much is your investment horizon? (Tick the option) a) Within a year b)Between 1 – 3years c) More than 3 yearsQ.5 How much amount do you invest in Mutual funds? (Tick the option)a) < Rs.50000 b) Between Rs.50000- Rs.100000 c)>Rs. 100000Q.6. Are you willing to tolerate decreases in the value of your account from onemonth to the next? (Tick the Option)(a) Not at all (b) Somewhat (c) DefinitelyQ.7.What is your risk preference?a) High risk and high return b) Moderate risk and Moderate return c) Low risk and lowreturnQ.8How satisfied you are with your experience of investing in SBI Mutual Funds?Highly Satisfied Considerably Satisfied Reasonably Satisfied UnsatisfiedHighly UnsatisfiedQ.9 Which Fund House has largest share in your Investment Portfolio: (Mentionit)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 219
  • Q. 10 Scheme Preferences: (Tick the Option)a) Equity b) Debt c) Balanced d) Fixed Maturity Plan (FMPs) e) Others (PleaseSpecify----------------------------)Q.11 Saving Preference: (please rank them):(a)Life Insurance(b)Pension and PF Schemes(c)Bank Deposit(d)Shares and Debentures(e)Units of MFs like SBI(f)Gold/Jeweler(f)Others (Please Specify-------------------------------------)Q.12 Preferable route to Mutual Fund Investing: (Tick the option)(a)Friend’s Suggestion (b) Newspapers/Magazines (c) Self Decision (d) Television (e)Brokers/Agents (f) others (Please Specify------------------------------------)Q.13You Prefer:(a)Open Ended Scheme (b) Close Ended Scheme (c) Interval SchemeMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 220
  • Q.14How much of your income you able to save: Below 5% 5-10% 10-15% 15-20% 20-25% ABOVE 25Q. 15Rank following factors that you consider while selecting a scheme:a) Scheme Qualities like track record, fund size, entry load etc.b) Fund Manager Experiencec) Investor Services like disclosure of NAV, A/C statements.d) Marketing of funds through bill boards, relatives, friends, brokers etc.Q.16.Any Suggestion for SBI Mutual Funds: (Please mention it)Q.17. Rate the following factors which influences your investment in mutual funds onthe importance scale where 1 is least important, 3 is neutral, 5 is most important. Factors 1 2 3 4 5 Historical performance of fund Fund’s returns over market return Performance of Fund manager Current Economic and Market conditions Type of schemes (growth, income, balanced & others) Expected Dividend going to be deliver by the fund Advisor or broker or agent influence Convenience in investing in the fund Transparency maintained by the fund house Minimum investment or lot size Lock in period in a fundMRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 221
  • Asset under managementFund ratingFund prospectus or offer documentInternet i.e. Website influencePrior experience with the fund houseFluctuation in equity marketsFees ,load and expensesReputation of fund houseSecurity provided by the fund in terms of returnTax benefit deriving from investment in the fundNAV or price of fund’s unitAttitude towards riskFriend/family recommendationPromotional campaign of the fundPERSONAL DETAILS:NAME: TEL.NO: 1. SEX:M F 2. AGE: Below 30 31-40 41-50 Above 50 3. ACADEMIC QUALIFICATION: Graduate Post Graduate Professional Others(Please Specify---------------------------) 4. Marital Status: Married Unmarried 5. Occupation: Professional Salaried Business Retired Others--------------------MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 222
  • 6. Annual Income: Less than 2,00,000 2,00,001-5,00,000 5,00,001-10,00,000 Above10lakh 7. Area: East Delhi West Delhi North Delhi South DelhiOthers……………….SIGNATURE QUESTIONNAIRE-2 (For Bankers)Q1) what is the age group of the investors? • Under 25 yrs • 25 to 45 yrs • 45 to 65 yrs • Over 65 yrsQ2) Which are the best performing schemes in the market? • SBI Mutual Fund • Reliance Mutual Fund • Kotak Mahindra Mutual Fund • Birla SunLife Mutual Fund • DSP Mutual Fund • HDFC Mutual Fund • ICICI Mutual Fund • Others (Please specify)MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 223
  • Q3) Do they want any changes in the existing or future schemes? • Services • Dividends • Portfolio • Others(please specify)Q4) Suggest a portfolio for a dream scheme? • IT sector • FMCG sector • Pharma sector • Infrastructure • Commodities • Automobile • Energy • Telecom • Financial services • Media & Entertainment • Others(Please specify)Q5) What is the approx sales of the best seller scheme? • Less than 10 lakh • 10 to 20 lakh • 20 to 30 lakh • More than 30 lakhQ6) What are the facilities that other Banks/Mutual Fund houses are providing? • Service • Commission • Product related information • Others (Please Specify)Q7) What are your grievances, if any?MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 224
  • ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Q8) What is the expected return in that scheme (any specific scheme)? Scheme name: ___________________ • Less than 10% • 10-15% • 15-20% • 20-25% • Over 25%Q9) Suggest ways by which we can improve upon our relationship. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 225
  • ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Q8) What is the expected return in that scheme (any specific scheme)? Scheme name: ___________________ • Less than 10% • 10-15% • 15-20% • 20-25% • Over 25%Q9) Suggest ways by which we can improve upon our relationship. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________MRINAL MANISH (4108078078)INDIAN INSTITUTE OF FINANCE Page 225